In this article, we discuss the 10 best dividend stocks to buy according to Diamond Hill Capital. You can skip our detailed analysis of the hedge fund’s performance and investment strategy, and go directly to the 5 Best Dividend Stocks to Buy According to Diamond Hill Capital.
Ric Dillon founded Diamond Hill Capital, which uses a research-driven approach to deliver stable returns to shareholders, in 2000. The fund focuses on long-term investments by lining up its interests with its clients. In 2018, Dillon retired from the firm, with Heather Brilliant currently serving as the chief executive officer of Diamond Hill Capital. As of July, the fund had $27.2 billion in assets under management.
In one of her recent interviews with CNBC, Heather Brilliant mentioned that investors should take a long-term perspective and look for companies that are priced for a possible recession. In this regard, investors should focus on companies with a ‘strong competitive advantage’ where it’s easier to forecast their performance relative to their competitors in the current environment. She further said that her fund prefers tech stocks that are a fundamental part of the economy and offer long-term investment opportunities.
Over the years, Diamond Hill Capital has delivered steady returns to shareholders. The firm’s Small Cap Fund has returned 9.27% on average since its inception in 2000 while its 3-year returns came in at 7.43%. In addition to this, its Mid Cap Fund gained 7.38% in July, while its Large Cap Fund surged 7.50%.
As of the end of Q2 2022, Diamond Hill Capital had a 13F portfolio valued at over $22.8 billion, compared with nearly $26.9 billion in the previous quarter. The hedge fund had investments in several sectors, with finance taking up the largest chunk of the portfolio. Moreover, dividend stocks also make up a significant portion of the fund’s portfolio. Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) were some of the firm’s major holdings. However, in this article we’ll discuss the best dividend stocks in Diamond Hill Capital’s portfolio in Q2.
Ric Dillon of Diamond Hill Capital
Our Methodology:
For this article, we selected dividend stocks from Diamond Hill Capital’s 13F portfolio as of Q2 2022. The companies are ranked according to the value of Diamond Hill Capital’s stake in them.
10 Best Dividend Stocks to Buy According to Diamond Hill Capital
10. Caterpillar Inc. (NYSE:CAT)
Diamond Hill Capital’s Stake Value: $340,506,000
Caterpillar Inc. (NYSE:CAT) is an Illinois-based manufacturer of construction and mining equipment, diesel, and natural gas engines. In August, Credit Suisse raised its price target on the stock to $236 with an ‘Outperform’ rating on the shares as the firm sees strong demand across all segments of the company.
Diamond Hill Capital opened its position in Caterpillar Inc. (NYSE:CAT) during the third quarter of 2020, purchasing shares worth $162 million. In Q2 2022, the hedge fund owned roughly 2 million CAT shares, worth $341 million. The company represented 1.48% of the firm’s 13F portfolio and is a prominent holding of the firm along with Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT).
On June 8, Caterpillar Inc. (NYSE:CAT) declared an 8% hike in its quarterly dividend to $1.20 per share. This was the company’s 28th consecutive year of dividend growth. The company has raised its dividends at a CAGR of 7.95% over the last five years. As of August 31, the stock’s dividend yield stood at 2.57%.
At the end of Q2, 45 of the hedge funds tracked by Insider Monkey’s database owned stakes in Caterpillar Inc. (NYSE:CAT), compared with 54 in the previous quarter. The collective value of those 45 stakes was over $3.25 billion. With a position worth over $1.3 billion, Fisher Asset Management owned the largest position in the company on June 30.
Diamond Hill Capital mentioned Caterpillar Inc. (NYSE:CAT) in its Q1 2022 investor letter. Here is what the firm had to say:
“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
9. The Home Depot, Inc. (NYSE:HD)
Diamond Hill Capital’s Stake Value: $344,666,000
The Home Depot, Inc. (NYSE:HD) is an American home improvement company and the largest home retailer in the U.S. The company provides renovation-related services and products to its consumers. In Q2, Diamond Hill Capital owned over 1.2 million shares in the company, increasing its position by 2%. The fund’s total HD stake was valued at $345 million, which represented 1.5% of its 13F portfolio.
In August, Truist lifted its price target on The Home Depot, Inc. (NYSE:HD) to $399 and kept a ‘Buy’ rating on the shares. The firm highlighted the company’s strong business trends and expects it to manage profitability better than its peers.
The Home Depot, Inc. (NYSE:HD) has paid dividends to shareholders for 142 straight quarters and has raised its payouts 14 years in a row. The company pays a quarterly dividend of $1.90 per share, which gives the stock a yield of 2.59% as of August 31.
As per Insider Monkey’s database, 80 hedge funds owned stakes in The Home Depot, Inc. (NYSE:HD) on June 30, growing from 75 in the previous quarter. Those stakes had a total value of over $5.3 billion, compared with $5.6 billion worth of stakes owned by hedge funds on March 31.
Diamond Hill Capital mentioned The Home Depot, Inc. (NYSE:HD) in its Q1 2022 investor letter. Here is what the firm had to say:
“Home Depot shares underperformed as continued solid fundamental results were outweighed by concerns about the impact rising mortgage rates may have on the housing market and general inflationary pressures potentially leading to a consumer spending slowdown. We view the long-term prospects and multi-year fundamental outlook as unchanged.”
8. Becton, Dickinson and Company (NYSE:BDX)
Diamond Hill Capital’s Stake Value: $346,590,000
Becton, Dickinson and Company (NYSE:BDX) is a New Jersey-based multinational medical technology company that specializes in medical devices and instrument systems. The company holds one of the strongest dividend growth records in the medical industry, raising its dividend consistently for the past 50 years. It currently offers a quarterly payout of $0.87 per share, with the stock yielding 1.37% as recorded on August 31.
Diamond Hill Capital first invested in Becton, Dickinson and Company (NYSE:BDX) during the fourth quarter of 2021, with shares worth over $395 million. In Q2 2022, the hedge fund owned 1.4 million shares in the company, valued at roughly $347 million. The company represented 1.51% of the fund’s 13F portfolio.
In June, Wells Fargo upgraded Becton, Dickinson and Company (NYSE:BDX) to ‘Buy’ with a $275 price target. The firm mentioned that BDX is well-positioned to weather the macro challenges because of its solid fundamentals and strong balance sheet.
According to Insider Monkey’s data, Generation Investment Management was the largest stakeholder of Becton, Dickinson and Company (NYSE:BDX) in Q2, owning a stake worth roughly $790 million. In addition to this, 42 hedge funds tracked by our database owned stakes in the medical device company in Q2, worth over $2.1 billion.
ClearBridge Investments mentioned Becton, Dickinson and Company (NYSE:BDX) in its Q4 2021 investor letter. Here is what the firm had to say:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like medical equipment (medical device and laboratory supplier Becton Dickinson). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
7. Union Pacific Corporation (NYSE:UNP)
Diamond Hill Capital’s Stake Value: $367,490,000
Union Pacific Corporation (NYSE:UNP), a Nebraska-based transport company, is one of the latest acquisitions of Diamond Hill Capital. The hedge fund initiated its position in the company in Q2, buying over 1.7 million shares, worth nearly $368 million. The company accounted for 1.6% of the fund’s 13F portfolio.
On July 28, Union Pacific Corporation (NYSE:UNP) declared a quarterly dividend of $1.30 per share, raising it by 10% in May. The company has paid uninterrupted dividends on its common stock for 123 years and has raised its payouts consistently for 15 years. As of August 31, the stock’s dividend yield stood at 2.31%.
In July, Credit Suisse initiated its coverage of the stock with an ‘Outperform’ rating and a $255 price target, appreciating its structural advantages and business fundamentals.
At the end of June 2022, 65 hedge funds tracked by Insider Monkey owned stakes in Union Pacific Corporation (NYSE:UNP), declining from 89 in the previous quarter. Those stakes held a combined value of over $6.36 billion. Fisher Asset Management was the company’s leading stakeholder with a $1.1 billion position in the stock.
Carillon Tower Advisers mentioned Union Pacific Corporation (NYSE:UNP) in its Q1 2022 investor letter. Here is what the firm had to say:
“Union Pacific (NYSE:UNP) benefited from rising oil prices, which typically bring more demand for rail shipping as opposed to moving freight by truck. Rail transportation can be much more fuel-efficient than over-the-road trucking.”
6. Parker-Hannifin Corporation (NYSE:PH)
Diamond Hill Capital’s Stake Value: $392,195,000
Parker-Hannifin Corporation (NYSE:PH) is an Ohio-based company that specializes in motion and control technologies. In Q2, the company was a part of 35 hedge funds’ portfolios, compared with 39 in the previous quarter. The stakes owned by those hedge funds had a total value of over $1 billion.
Parker-Hannifin Corporation (NYSE:PH) is one of the oldest holdings of Diamond Hill Capital, as the hedge fund started investing in the company in 2010. In Q2 2022, the fund increased its position in the company by 2%, which lifted its total stake to over $392 million. The company made up 1.71% of the fund’s 13F portfolio.
Parker-Hannifin Corporation (NYSE:PH) has one of the longest dividend growth streaks in the S&P 500 index, raising its dividends consistently for the past 65 years. The company currently pays a quarterly dividend of $1.33 per share, with shares having a dividend yield of 1.97% as of August 31.
Highlighting the company’s strong fiscal Q4 results and revenue growth, Mizuho raised its price target on Parker-Hannifin Corporation (NYSE:PH) in August to $300 while maintaining its ‘Neutral’ rating on the shares.
In addition to Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT), Parker-Hannifin Corporation (NYSE:PH) is another important dividend stock in Diamond Hill’s portfolio.
Oakmark Funds mentioned Parker-Hannifin Corporation (NYSE:PH) in its Q2 2022 investor letter. Here is what the firm had to say:
“A former long-time holding, Parker Hannifin (NYSE:PH) made its way back into the Fund this quarter. We believe investors’ perception of the company as a short-cycle, diversified manufacturer that’s heavily tied to industrial production has become stale. Since becoming CEO in 2015, Thomas Williams has vastly improved operations and shifted the portfolio to a longer cycle, higher growth, and higher return end markets. With the expected closing of the Meggitt acquisition this calendar year, Parker Hannifin’s highly depressing aerospace segment will become its largest end market. We anticipate a rebound in aerospace revenue, which combined with the company’s strong position in attractive businesses like clean energy technologies and factory automation-should further accelerate revenue growth. Parker Hannifin trades at a discount to other high-quality industrials, which we believe is unwarranted since its growth and returns should be as good or better than peers. At 12x next year’s cash earnings, Parker Hannifin is an attractive investment, in our view.”
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Disclosure. None. 10 Best Dividend Stocks to Buy According to Diamond Hill Capital is originally published on Insider Monkey.