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Hedge Funds’ Favorite Dividend Aristocrats

Dividend investors are all too familiar with the importance of stability of dividends, besides the yield of course. In order to find the best possible stock picks in this regard, we compared the Dividend Aristocrats of 2015 against hedge fund holding in these companies, and came up with the five most popular dividend aristocrats. The list includes Air Products & Chemicals, Inc. (NYSE:APD), McDonald’s Corporation (NYSE:MCD), Walgreens Boots Alliance Inc (NASDAQ:WBA), Johnson & Johnson (NYSE:JNJ) and Exxon Mobil Corporation (NYSE:XOM). Surprisingly enough, none of these companies were in the most popular hedge fund picks that we had compiled earlier.

Air Products & Chemicals, Inc. (NYSE:APD)

Dividend Aristocrats comprises a list of 52 companies, which are constituents of S&P 500 and have consistently increased their dividends over the last 25 years. While dividend payouts are an important consideration, it is certainly not the only variable at play when an investor decides to take a long position in a company. Moreover, our research has also revealed that following the top picks of hedge funds, which mostly comprise of large cap companies also has its short falls. We have discovered that popular small-cap stocks among hedge funds tend to outperform the market more consistently, and by a larger margin. These stock picks, which are the main focus of our newsletter have returned a cumulative of 132% since the end of August 2012 till 11th March 2015. S&P 500 ETF returned less than 55% during the same period . However, it is still interesting to gain an insight into the companies that hedge funds are focusing on.

Air Products & Chemicals, Inc. (NYSE:APD) garnered strong support from hedge funds during the fourth quarter with 82 funds having an aggregate investment of $8.92 billion in the company as compared to 71 funds with $7.87 billion a quarter earlier. The supplier of hydrogen and helium has been increasing its dividends for the last 32 years, with the latest increase being more than a year ago. The stock’s dividend yield stands at 1.97%, with a quarterly dividend of $0.49. Bill Ackman of Pershing Square held about 20.55 million shares of Air Products & Chemicals, Inc. (NYSE:APD) valued at $2.96 billion towards the end of 2014. Besides a reasonable dividend yield the stock has delivered capital gains of nearly 52% over the last 52 weeks.

After Bill Ackman acquired an activist stake in Air Products & Chemicals, Inc. (NYSE:APD), he pushed for significant changes at the company, including the appointment of a new CEO. These are paying off well and can be seen in the company’s fourth quarter financial results, which delivered an EPS of $1.66, marking an 11% increase from the same quarter last year, and revenues of $2.67 billion were 0.4% on a year over year basis.

Having a current dividend yield of 2.73%, Johnson & Johnson (NYSE:JNJ) has not decreased its dividends for more than 52 years. The most recent of these increases came in the second quarter of 2014, when the quarterly dividends rose to $0.7 from $0.66. During the fourth quarter, the company’s popularity among hedge funds decreased slightly with 76 firms holding around $4.98 billion worth of stock, versus 78 funds with $6.0 billion in the third quarter. Among the hedge funds that we track, billionaire Ken Fisher’s Fisher Asset Management held the largest stake in Johnson & Johnson (NYSE:JNJ) with 10.42 million shares valued $1.09 billion.

McDonald’s Corporation (NYSE:MCD) sports the highest dividend yield of 3.53% in this group. The last 4.9% increase in the third quarter has put its quarterly dividend at $0.85. Mason Hawkins of Southeastern Asset Management held some 11.92 million shares valued at $1.12 billion. Overall, during the fourth quarter, the hedge funds invested in the fast food chain rose to 75 ($5.15 billion) from 69 ($5.27 billion).

The ailing fast food giant has been further hit by a decline in comparable store sales on a global basis this year, with a 1.7% dip in February and 1.8% in January. McDonald’s Corporation (NYSE:MCD)’s attractive 17.79 forward earnings multiple has been able to attract quite a few investors as it topped the list of hedge funds’ favorite restaurant picks.

Walgreens Boots Alliance Inc (NASDAQ:WBA) is up by about 9.2% year to date on the heels of strong first fiscal quarter financial results involving an EPS of $0.81, which beat estimates by $0.06 and revenues of $19.55 billion which came in $50 million higher than expected. On top of this, the drug store chain sports a dividend yield of 1.61% and has been increasing its dividends for the last 60 years. Walgreens completed its merger with Switzerland based Alliance Boots GmbH in late December last year. It was a two step merger that started in August 2012 when Walgreens invested approximately $4.0 billion in cash and 83.4 million shares of its common stock in exchange for a 45 percent equity ownership stake in Alliance Boots. The second step involved acquiring rest of Alliance Boots stake for $5.3 billion in cash and 144.3 million shares of stock.

70 hedge funds had invested $7.0 billion in Walgreens Boots Alliance Inc (NASDAQ:WBA) by the end of 2014 as compared to 79 firms with $5.7 billion a quarter earlier. Andreas Halvorsen’s Viking Global held 18.93 million shares valued at $1.44 billion.

Exxon Mobil Corporation (NYSE:XOM) faced a significant loss in popularity among hedge funds as the number fell to 62 firms having $4.01 billion invested in the company as opposed to 71 funds with $9.12 billion a quarter earlier. The stock has declined nearly 10% during the second half of 2014. Donald Yacktman’s Yackman Asset Management is still long in the petroleum refining company with 7.01 million shares valued at $648.25 million. On the other hand, Warren Buffett of Berkshire Hathaway closed his stake in the company during the fourth quarter as he sold some 41.13 million shares.

Exxon Mobil Corporation (NYSE:XOM) sports the second highest yield of 3.29% among this group of companies. Dividends haven’t been slashed for over 32 years, with the latest increase of nearly 10%, taking quarterly dividend to $0.69, coming in the second quarter of 2014.

Disclosure: none