Should You Follow Billionaire Activist Dan Loeb into His Dividend Picks?

Billionaire activist Dan Loeb mostly invests in companies that trade below their intrinsic value and try to push for changes in order to maximize the shareholder value. However, among his picks, many companies also represent solid investments that can generate value over the long-term without the need for a catalyst like an activist campaign. In its last 13F filing, Loeb’s Third Point revealed an equity portfolio worth $10.60 billion, consisting of 32 positions. Some of Loeb’s picks include companies that pay a decent dividend, which proves their financial stability and also allow investors to benefit from the steady payments. In this article we are going to take a look at five of Loeb’s dividend picks.

Dan Loeb is one of the over 700 investors, whose 13F filings we monitor on a quarterly basis in order to identify stocks that they are collectively bullish on and use this information in order to beat the market. However, according to our research, imitating these investors’ most popular picks overall is not the best approach, because these stocks represent mostly large- and mega-cap popular companies that are more efficiently priced. On the other hand, following smart money investors into their best small-cap ideas can generate returns nearly one percentage points above the market per month. Our strategy involves imitating a portfolio of the 15 most popular small-caps among the investors from our database and it has managed to return 102% since August 2012, beating the S&P 500 ETF (SPY) by some 53 percentage points (see more details here).

Dow Chemical Co (NYSE:DOW) represents Loeb’s fourth-largest holding, the fund amassing 23.50 million shares worth $996.40 million. During the third quarter, as the stock lost 16%, Third Point raised its position by 500,000 shares. Third Point has two representatives on Dow Chemical Co (NYSE:DOW)’s board and last year tried to pursue the company to spin off its petrochemical business. However, earlier this year, Dow announced plans to separate its chlorine business and to sell it to Olin Corporation (NYSE:OLN) for $2.0 billion in cash and 50.5% of Olin’s stock. Despite the third-quarter drop, Dow Chemical’s stock is 12% in green year-to-date and trails a dividend yield of 3.60%. In an investor conference call last month, billionaire Leon Cooperman‘s Omega Advisors revealed holding 1.7% of its assets in Dow Chemical Co (NYSE:DOW) and issued a 12% growth rate outlook for the stock.

In Yum! Brands, Inc. (NYSE:YUM), Third Point also increased its stake by acquiring some 8.03 million shares during the third quarter. At the end of September, the fund held 23.50 million shares worth $927.42 million. Loeb initiated a stake in Yum Brands in the first quarter, saying in the investor letter that the company should be able to overcome its problems in China. In October, Yum! Brands, Inc. (NYSE:YUM) said that it plans to spin-off its Chinese business into a separate publicly-traded company. The stock had a strong run in the first six months of 2015, but the decline in the last couple of months has offset those gains and sent the stock 4% in the red in year-to-date terms. With a dividend of $0.46 per quarter, Yum! Brands, Inc. (NYSE:YUM)’s stock has a dividend yield of 2.65%. Doug Silverman and Alexander Klabin’s Senator Investment Group held 3.85 million shares of Yum! Brands at the end of September.

On the next page we are going to take a look at one of Loeb’s new holdings, Kraft Heinz Co (NASDAQ:KHC), as well as two companies, in which the investor cut its stake during the third quarter, Anheuser Busch Inbev SA (ADR) (NYSE:BUD) and J M Smucker Co (NYSE:SJM).

Kraft Heinz Co (NASDAQ:KHC) represents a new position in Third Point’s equity portfolio, the investor reporting a $582.28-million stake that contains 8.25 million shares. In May, at the SALT Conference, Loeb criticized Warren Buffett for discrepancies between what Buffett advocated and his real actions, but looks like it didn’t stop him from following him into Kraft Heinz Co (NASDAQ:KHC), whose stock started trading at the beginning of July, following the merger between Kraft and H.J. Heinz that was orchestrated by Buffett. Kraft Heinz’s stock lost 3% since it went public and currently sports a dividend yield of 3.25%. Another shareholder of Kraft Heinz Co (NASDAQ:KHC) is Philippe Laffont’s Coatue Management, which reported 1.88 million shares in its latest 13F filing.

On the other hand, in Anheuser Busch Inbev SA (ADR) (NYSE:BUD), Third Point reduced its position by 350,000 shares, reporting 1.40 million shares worth $148.85 million as of the end of September. The stock has gained some 7% since the beginning of the year and has a dividend yield of 3.34%. Recently, Anheuser Busch Inbev SA (ADR) (NYSE:BUD) reached an agreement to acquire SABMiller, in a deal worth approximately $105 billion. The deal, if approved by regulators, will increase Anheuser’s portfolio of brands and will expand its presence in many regions, such as Africa. An investor that is betting big on Anheuser Busch Inbev SA (ADR) (NYSE:BUD) is billionaire Ken Fisher of Fisher Asset Management. According to Fisher’s latest 13F filing, it added 4.67 million shares to its stake during the third quarter, taking it to 4.72 million shares as of September 30.

J M Smucker Co (NYSE:SJM) represented one of Third Point’s smallest stakes, the fund holding 1.30 million shares worth $148.32 million. During the third quarter, the fund unloaded 150,000 shares, as the stock inched up by around 6%. Overall, J M Smucker Co (NYSE:SJM)’s shares have gained 11% so far this year, and are currently trading at an earnings multiple of 33, which is above the median for the S&P 500, but significantly below the industry average. Another shareholder of J M Smucker Co (NYSE:SJM) is John W. Rogers’ Ariel Investments, which held 1.93 million shares at the end of the third quarter.

Disclosure: none