Guest contribution by Insider Monkey
Amid a broader market downturn, it seems there’s no place left for investors to park their money except dividend stocks. The market’s appetite for high-yield dividend stocks is rising by the day as recession warnings ramp up.
Data from Bloomberg shows that in the third quarter alone, S&P 500 Energy Index companies doled out $16.4 billion in cumulative dividends, up about 49% from $11 billion paid in the same period last year.
Hedge Funds are Buying Despite Recession Fears
What makes the smart money smart is their long-term outlook. After all, to quote the Oracle of Omaha Warren Buffett, smart investors are “greedy when others are fearful.” Latest data from Goldman Sachs show hedge funds are still buying individual stocks and they are not cutting their long positions.
Insider Monkey’s analysis based on the data of hundreds of top hedge funds in the US show that top money managers were loading up on dividend stocks and defensive equities way before the broader market downturn started.
In this article we take a look at five high dividend stocks elite hedge funds are growing bullish on. We used the database of 895 hedge funds maintained by Insider Monkey, choosing high-yield stocks (over 6% dividend yield as of Sept. 29) which saw a significant rise in hedge fund sentiment in the second quarter. This analysis would show how the smart money was piling into high dividend stocks way before the broader market started panic buying income plays.
Simon Property Group Inc (SPG)
Simon Property, the largest shopping mall owner in the US, is one of the favorite high-yield dividend stocks of the smart money. Among the notable investors that boosted their stakes in the Indianapolis-based REIT during the second quarter include billionaire Ray Dalio, Israel Englander, Cliff Asness, Ken Griffin and DE Shaw. A total of 45 hedge funds had stakes in the company as of the end of the June quarter, compared to 35 funds in the previous quarter.
Simon Property is making a strong comeback after having to cut its dividend during the pandemic. In June last year, it raised its dividend by 7.7%. On Aug. 1, 2022, it announced yet another dividend increase (+6.6%). The company has also upped its 2022 guidance after beating Wall Street estimates for the second quarter. The company now expects 2022 comparable FFO per share of $11.70-$11.77, up from its prior guidance of $11.60-$11.75.
LyondellBasell Industries NV (LYB)
The Netherlands-based chemicals giant LyondellBasell has been increasing its dividends consistently for 11 years. Its low payout ratio (27%), high free operating cash flow yield (26%) and a strong position in the materials industry make it a decent dividend stock to buy and hold during turbulent times. Perhaps that’s why hedge funds increased their bullish bets on LyondellBasell in 2022. In the first quarter, 32 funds in our database had stakes in the company. That number jumped to 37 in the June quarter. Boykin Curry’s Eagle Capital Management was the leading stakeholder in the company at the end of June with a $358 million position. Another major stakeholder in the company was billionaire Cliff Asness’ AQR Capital with a $219 million stake.
Wall Street analysts also seem to agree with the smart money on LyondellBasell. The stock ranked second in the list of the top dividend stocks Morgan Stanley recommended to investors earlier this month.
Lumen Technologies Inc (LUMN)
Louisiana-based telecommunications company Lumen has become an attractive dividend stock for hedge funds and retail investors in 2022, thanks to its tempting dividend yield, strong free cash flow and attractive valuation. The company expects to generate $2.0 to $2.2 billion in free cash flows in 2022. Lumen’s dividend yield as of Sept. 29 stands at over 12%, significantly more than the 3%-5% median dividend yield offered in the telecommunications sector.
Hedge fund sentiment for Lumen shot up in the June quarter as 42 out of the 895 hedge funds tracked by Insider Monkey ended the period with stakes in the company, up from 30 in the quarter earlier.
Lumen stock has taken a beating over the past two weeks as investors fear the new CEO, Kate Johnson, due to take charge in November, could initiate dividend cuts. However, several analysts believe the sell-off has made the stock even more attractive as its free cash flow and payout ratio show the stock’s dividend is safe.
ONEOK, Inc. (OKE)
Even though ONEOK is getting punished amid recession fears and interest rate hikes, the stock has a remarkable track record when it comes to dividends. The company has been paying dividends for 50 years now and did not cut its dividend in the last 25 years. Its streak of dividend increases, however, broke in 2021. While the company’s leveraged balance sheet has been a concern for many, ONEOK’s critical natural gas infrastructure in the country and its fee-based model make it somewhat immune to inflation and commodity price challenges.
In the second quarter, ONEOK’s revenue jumped a whopping 77% on a year-over-year basis to reach $6 billion, crushing analyst estimates of $5.18 billion.
Insider Monkey’s database of 895 hedge funds shows that 30 funds had stakes in ONEOK in the second quarter, compared to 25 in the previous quarter. Some noteworthy names having major stakes in the company are Ken Griffin’s Citadel, Israel Englander’s Millennium Management and quant genius Jim Simons’ Renaissance Technologies.
Dow Inc (DOW)
Chemicals giant Dow Inc. has shed 15% in the past one month. This has made Dow’s valuation attractive. Dow Inc. is defensively positioned thanks to its global presence and diverse area of operations which include chemicals, plastics, consumer case, industrials and farming. The company has significantly reduced its debt and now has less than $1 billion in debt maturities over the next five years. Its payout ratio comes in at 39% as of Sept. 29.
At the end of June, 45 hedge funds in Insider Monkey’s database had stakes in Dow Inc. The collective value of these stakes was about $872 million. This was significantly up from 39 funds having stakes in the company in the March quarter with collective stakes amounting to $851 million.
Richard S. Pzena’s Pzena Investment Management is the biggest stakeholder of Dow Inc. as of the end of June as the fund owns a $324 million stake in the company.
Additional Reading
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The 2022 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The 2022 High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The 2022 Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks
