Pfizer Inc. (PFE) & Johnson & Johnson (JNJ) In Billionaire David Shaw’s Top Dividend Picks
Many market watchers believe that quarterly 13F filings from hedge funds are of no use to most investors, but we have shown that this is false in at least one way: it is possible, according to our research, to use the information in these filings to develop and implement investment strategies. For example, we have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and then designed a portfolio based on this strategy which outperformed the S&P 500 by 33 percentage points in the last 11 months.
Another common use for 13Fs is to treat them as a source of free initial investment ideas and then do more research on any individual stocks which seem interesting in a number of areas, including stocks which are notable for paying moderate to high yields. Read on for our quick take on the five largest positions in billionaire David Shaw’s D.E. Shaw’s portfolio from its most recent 13F which currently pay dividend yields of at least 3%, check out the full filing on the SEC's website, or see the full list of the fund's picks over time.
During Q2, D.E. Shaw more than doubled the size of its position in Pfizer Inc. (NYSE:PFE) to a total of more than 15 million shares. Pfizer Inc. (NYSE:PFE) currently pays a dividend yield of 3.4%. Its stock trades at 12 times consensus earnings forecasts for 2014, which would make it a potential value play as well if those predictions came to fruition. We would note that Pfizer Inc. (NYSE:PFE) has been selling or spinning out a number of its businesses, including its animal health unit Zoetis, and that many market watchers believe that this will help management focus on core business operations (improving margins).
Another healthcare stocks occupying a prime place in the fund’s portfolio was Johnson & Johnson (NYSE:JNJ). With many of its products fulfilling more staple needs among consumers, Johnson & Johnson (NYSE:JNJ) has little exposure to the overall economy (beta of 0.5) and as a megacap could be considered a blue-chip defensive stock. Sales were up decently last quarter compared to the second quarter of 2012, rising 9%, and so even though Johnson & Johnson (NYSE:JNJ) has a fairly premium valuation (the trailing earnings multiple is 20) it may not be too high-priced to be worth considering.
Philip Morris International Inc. (NYSE:PM) was another of D.E. Shaw’s dividend picks with the filing disclosing ownership of 2.6 million shares. Actually, multiple cigarette companies pay a higher dividend yield than Philip Morris International Inc. (NYSE:PM)’s 4%, though in theory this is because Philip Morris International Inc. (NYSE:PM) tends to play in international markets with higher growth prospects and therefore needs to retain more of its cash for investing activities. Recently, business has been down- likely due to a weak global economy and currency factors (as the dollar rises against many currencies in emerging markets)- and the trailing earnings multiple is 17.
D.E. Shaw added shares of McDonald's Corporation (NYSE:MCD) last quarter, closing June with 2.2 million shares in its portfolio. The market leading quick service restaurant is a common defensive pick, featuring a beta of 0.2 and an annual yield of 3.2%. With challenges from peers offering more premium products, growth has been limited recently (revenue and earnings were up less than 4% each in the second quarter of 2013 versus a year earlier) yet with markets generally optimistic among QSRs the trailing and forward P/Es are 17 and 16 respectively. While it offers little exposure to the overall economy, this combination of valuation and growth doesn’t seem too appealing.
The 13F revealed a stake of 7.4 million shares in Vodafone Group Plc (ADR) (NASDAQ:VOD), which some analysts have speculated may sell its minority stake in Verizon Wireless to Verizon. While the company’s dividend payments tend to fluctuate in dollar terms, they have generally been on the rise for the past few years. If we use dividend payments over the last twelve months and the current stock price, we get an annual yield of 5.2%, competitive with many other large telecoms. However, many bears believe that Vodafone Group Plc (ADR) (NASDAQ:VOD)’s non-VZW assets are poorly managed and merit a discount to the company’s peers in the absence of a Verizon deal.
Disclosure: I own no shares of any stocks mentioned in this article.