With the prevalent low interest rate environment, the prospects of stocks paying healthy dividends look extremely promising for an investor. Keeping this in mind, we at Insider Monkey have formulated a list of top five stocks, which rate the highest in terms of attracting investment from the 737 hedge funds that we track, and deliver not only a considerable dividend yield, but also have a reliable dividend history.
According to our research, following the top picks of hedge funds isn’t necessarily the best strategy for all investors, especially when you are not tied by the limitations imposed on these funds. The empirical evidence of this lies in the fact that the 30 most popular stocks among hedge funds between 1999 and 2009 outperformed the market by only 2% on an annual basis. On the other hand, our research shows that the small-cap picks of these funds outperformed the market annually by double digit rates during the same period. Hence, it is the small-cap companies that can unlock significant value for most investors.
If this were indeed true, the reader might wonder, why the hedge funds themselves do not follow such a strategy in its entirety. The answer to that is that with the huge size of portfolios that these fund managers have under their control, it becomes essential to diversify and there in comes the need to invest in large-cap companies. Moreover, small-cap companies can only take as much investment before their price is stretched to unattractive levels because of excessive demand.
The importance of dividend investing still cannot be undermined as it affords the reader an idea of how this market looks like and what should be their top candidates, if they do decide to proceed in this direction. Companies included in this compilation, according to the last round of 13F filings included Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Applied Materials, Inc. (NASDAQ:AMAT), Air Products & Chemicals, Inc. (NYSE:APD), Johnson & Johnson (NYSE:JNJ). These companies have a dividend yield of at least 1.40% and have a solid dividend history for the the last two years.
Apple Inc. (NASDAQ:AAPL) ranked first on this list with an overwhelming 149 hedge funds having a total investment of $20.88 billion at the end of the last quarter. The darling of the fund managers pays a dividend of $0.47, which gives it a yield of 1.48%, which is not the most spectacular among this group of five companies, but given the return of 68% that Apple has delivered over the last 52 weeks, the investment in the $737.4 billion tech company has been rewarding for the investors. The famous activist investor, Carl Icahn of Icahn Capital Lp owns a major chunk of Apple Inc. (NASDAQ:AAPL)’s stock amounting to nearly 52 million shares valued at $5.82 million.
Moving on to the second candidate, Microsoft Corporation (NASDAQ:MSFT), which delivered a dividend yield of 2.93%, the highest in this list. The popularity of the tech giant, in terms of the number of hedge funds invested in it, faced a set back during the last quarter as it declined to 15.5% from 17.5% a quarter earlier. Hedge funds that cut their stakes included Jean-Marie Eveillard’s First Eagle Investment Management, which owned 36.23 million shares valued at $1.68 billion and Boykin Curry‘s Eagle Capital Management, which had 32.13 million shares valued at $1.49 billion. Microsoft Corporation (NASDAQ:MSFT) has been facing a recent sell off on the stock market and the stock is down 8.7% year to date owing to decline in the second quarter earnings per share (EPS) to $0.71 as compared to the $0.78 in the year-earlier period. However, with the fundamentals of the company looking strong, and future growth opportunities stemming from its latest acquisition of Nokia, suggest that the company could prove to be a good investment.