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JPMorgan’s Top Dividend Stocks for 2016, Part 2

In the second part of our series of articles covering JPMorgan’s favorite dividend stocks for 2016 (see the first part here), we cover Corning Incorporated (NYSE:GLW), Energy Transfer Partners LP (NYSE:ETP), EPR Properties (NYSE:EPR), FirstEnergy Corp. (NYSE:FE), and Foresight Energy LP (NYSE:FELP). In addition, we will also analyze relevant hedge fund sentiment toward each stock.

But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36 month period beginning from September 2012 (see the details here).

Corning Incorporated (NYSE:GLW)

– Number of Hedge Fund Holders (as of September 30): 38
– Total Value of Hedge Fund Holdings (as of September 30): $957.93 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 4.60%

With demand for 4K TV’s strong and management focused on increasing shareholder returns, the analysts at JPMorgan think Corning Incorporated (NYSE:GLW) has significant upside, with an ‘Overweight’ rating and a $20 price target. Not only does Corning pay a 2.67% dividend yield, but it is also undervalued on an ex-cash PEG basis versus its competitors. Shares trade at a cheap 12.33 times forward earnings and 10.6 forward P/E ex-cash. Among the 38 elite fund holders of the stock include David Harding‘s Winton Capital Management, which raised its position by 88% in the third quarter to 9.47 million shares.

Energy Transfer Partners LP (NYSE:ETP)

– Number of Hedge Fund Holders (as of September 30): 18
– Total Value of Hedge Fund Holdings (as of September 30): $470.44 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 2.20%

Despite the stock’s disappointing performance in 2015, JPMorgan still likes midstream giant Energy Transfer Partners LP (NYSE:ETP). The analysts have (perhaps an outdated) $73 price target on the stock, and believe the company’s 14.96% dividend yield is secure. Central to the analysts’ bullish thesis is the belief that Energy Transfer Equity LP (NYSE:ETE) will do whatever it takes to defend ETP, as Energy Transfer Equity LP’s growth depends in large part on a strong ETP. Hedge fund sentiment in the stock has remained stable, with the number of funds long Energy Transfer Partners LP unchanged at 18. Jim Simons’ Renaissance Technologies owned 1.81 million shares at the end of September. Given the industry’s recent events, we are not so sure about JPMorgan’s views in the short term, especially after Kinder Morgan Inc (NYSE:KMI)’s dividend cut, but we are bullish in terms of a timeline of five years or more.

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EPR Properties (NYSE:EPR)

– Number of Hedge Fund Holders (as of September 30): 18
– Total Value of Hedge Fund Holdings (as of September 30): $184.12 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 6.20%

Seeing as EPR Properties (NYSE:EPR)’s dividend growth has historically been in-line with its earnings growth (it is a REIT after all), and its income is expected to grow by around 6-7% next year, EPR’s forward dividend yield of 6.8% is too attractive to ignore. The analysts at JP Morgan have a $65 price target and an ‘Overweight’ rating. Hedge fund sentiment is becoming more optimistic, with 18 funds long the stock at the end of the third quarter, up from 15 at the end of the second quarter. John Osterweis‘ Osterweis Capital Management had a stake of 1.19 million shares as of the latest 13F reporting period, making up 2.78% of the fund’s portfolio.

FirstEnergy Corp. (NYSE:FE)

– Number of Hedge Fund Holders (as of September 30): 24
– Total Value of Hedge Fund Holdings (as of September 30): $558.36 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 4.20%

Although FirstEnergy Corp. (NYSE:FE) shares haven’t done well in 2015 with its stock down by 17% year-to-date, JP Morgan feels FirstEnergy’s management’s steps to de-lever the balance sheet and cut costs will go a long way in helping the stock bounce back. With the cost cutting and the paying-down of debt, FirstEnergy should have more cash flow that will make more investors take notice of the company’s low forward P/E of 11 and dividend yield of 4.64%. Among the FirstEnergy bulls is esteemed quant Cliff Asness’ AQR Capital Management which owned 943,570 shares at the end of September.

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Follow Firstenergy Corp (NYSE:FE)
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Foresight Energy LP (NYSE:FELP)

– Number of Hedge Fund Holders (as of September 30): 3
– Total Value of Hedge Fund Holdings (as of September 30): $5.31 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 0.80%

Investors haven’t been bullish on Foresight Energy LP (NYSE:FELP), as anything coal-related has been aggressively sold off due to the low natural gas prices and increased government emphasis on renewable energy. Because of those factors, shares of the company are down 80% year-to-date. In an outdated note, the analysts at JPMorgan are bullish, as they note Foresight’s costs should head South as its low-cost Hillsboro mine comes back online and as management unlocks synergies with the company’s Murray operations. Although the analysts at JPMorgan think the dividend is sustainable, the company has since put out a statement, saying that ‘it is likely that we will suspend the distribution on our common units, commencing with the quarter ending December 31, 2015’.

Disclosure: none

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