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In this article, we discuss the top 10 dividend stock picks of elite hedge funds. If you want to see more stocks in this selection, check out Dividend Stock Portfolio: Top 5 Stock Picks By Hedge Funds.
High bond yields have been a positive addition to the portfolios of income investors after years of nominal fixed-income returns. However, dividend stocks still provide essential balance and additional income to an asset portfolio, and they help combat the high inflation effectively. Jenny Harrington, CEO of Gilman Hill Asset Management, told Barron’s on October 29:
“You need capital appreciation of the share price and growth of the dividend in an inflationary environment.”
Dividend stocks have comparatively outperformed in the market selloff this year. Dividend-paying entities in the S&P 500 have dropped 11%, compared to the 19% decline in the S&P 500 benchmark and the 23% drop in non-dividend stocks so far this year. Income stocks are attractive amid market volatility since they protect investors against plummeting share prices. Stephanie Link, the chief investment strategist and portfolio manager at Hightower Advisors, advised investors to focus on dividend growth prospects rather than high yields alone. She further said:
“If companies are going to continue to increase their dividends, then I feel good about them.”
Similarly, David Katz, chief investment officer at Matrix Advisors, noted that although Treasury yield has risen which means that bond payout is attractive at about 4%, dividend stocks provide the potential for increasing payouts while bond payments remain fixed. Some of the best entities for a dividend stock portfolio include Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Mastercard Incorporated (NYSE:MA).
Our Methodology
We selected the following dividend stocks based on their popularity among elite hedge funds tracked by Insider Monkey in the second quarter of 2022. We have also mentioned the latest analyst coverage, underlying business fundamentals, and recent dividend payouts by the companies for additional context for readers. The dividend yields are mentioned as of November 2.
Photo by Mirza Babic on Unsplash
Dividend Stock Portfolio: Top Stock Picks By Hedge Funds
10. S&P Global Inc. (NYSE:SPGI)
Number of Hedge Fund Holders: 84
Dividend Yield as of November 2: 1.08%
S&P Global Inc. (NYSE:SPGI) is a New York-based provider of credit ratings, benchmarks, data analytics, and workflow solutions in the global capital and commodity markets. The company operates through six divisions – S&P Global Ratings, S&P Dow Jones Indices, S&P Global Commodity Insights, S&P Global Market Intelligence, S&P Global Mobility, and S&P Global Engineering Solutions. S&P Global Inc. (NYSE:SPGI) declared on September 28 a $0.85 per share quarterly dividend, in line with previous. The dividend is payable on December 12, to shareholders of record on November 18.
As of October 27, S&P Global Inc. (NYSE:SPGI) has completed $11 billion of its $12 billion accelerated share repurchase program year-to-date, and it expects to launch the remaining $1 billion of the authorized repurchase units in December.
Argus analyst John Eade on November 1 maintained a Buy recommendation on S&P Global Inc. (NYSE:SPGI) but lowered the price target on the shares to $365 from $420. The company has almost concluded a multi-year restructuring and is now focused on its rapidly growing financial businesses, including the lucrative and not very competitive business of rating bonds, the analyst told investors in a research note. The analyst also added that he believes S&P Global Inc. (NYSE:SPGI) management can pull through the tough inflation and high interest rate environment.
According to Insider Monkey’s database, 84 hedge funds were bullish on S&P Global Inc. (NYSE:SPGI) at the end of June 2022, compared to 97 funds in the prior quarter. Chris Hohn’s TCI Fund Management is the largest position holder in the company, with 8.76 million shares worth nearly $3 billion.
In addition to Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Mastercard Incorporated (NYSE:MA), S&P Global Inc. (NYSE:SPGI) is one of the top picks of elite investors for a dividend stock portfolio.
Here is what Baron Durable Advantage Fund has to say about S&P Global Inc. (NYSE:SPGI) in its Q2 2022 investor letter:
“Another example is S&P Global (NYSE:SPGI), the leading rating agency and data provider, whose stock declined 29.0% year-to-date and 17.5% during the second quarter as a result of growing investor concerns over the slowdown in debt issuance. While debt issuance volumes have seen a dramatic decline – the worst quarterly decline in a decade (down 41% year-over-year in the second quarter based on Goldman Sachs estimates), – and this led management to withdraw its 2022 guidance in early June, we do not believe it would result in a permanent loss of capital.
First, ratings represent only about 30% of S&P Global’s total revenues. Second, despite inherent volatility in quarterly or annual issuance, over the long-term issuance volumes follow the trends in levels of debt outstanding, which has compounded in the mid-single digits for many years. Lastly, we believe that S&P Global’s strong competitive positioning will enable it to continue benefiting from pricing power, while taking advantage of secular tailwinds such as the growth in passive and ESG investing, international expansion, and the growing demand for data analytics.”
9. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 84
Dividend Yield as of November 2: 0.12%
NVIDIA Corporation (NASDAQ:NVDA), the American multinational technology and semiconductor firm, is one of the most popular picks of hedge funds for a dividend stock portfolio. At the end of October, NVIDIA Corporation (NASDAQ:NVDA) stock gained as investors turned their attention towards the semiconductor industry in the midst of the Intel and Mobileye spin-off.
On October 24, Barclays analyst Blayne Curtis maintained an Overweight rating on NVIDIA Corporation (NASDAQ:NVDA) but lowered the price target on the shares to $140 from $190. The analyst is "actively looking for a bottom to get more positive" on the semiconductor sector and sees it closer in some end markets than others, but still believes "it is too early to pull the trigger across the board."
According to Insider Monkey’s data, NVIDIA Corporation (NASDAQ:NVDA) was part of 84 hedge fund portfolios at the end of June 2022, compared to 102 in the prior quarter. Ken Fisher’s Fisher Asset Management is a significant position holder in the company, with 7.6 million shares worth $1.15 billion.
Here is what Baron Funds specifically said about NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2022 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is a fabless semiconductor company and a leader in gaming and accelerated computing. NVIDIA is powering the growth of AI from the data center to the edge. Shares detracted due to inventory right sizing in NVIDIA’s gaming segment coupled with the broader market sell-off in growth stocks. Given NVIDIA’s end-to-end AI platform and its leading market share in gaming, data centers, and autonomous machines, along with the size of these markets, we believe the company can sustain its growth trajectory. See further discussion of NVIDIA in the top net purchases section below.
During the third quarter, we took advantage of its stock sell-off to add to NVIDIA Corporation, a fabless semiconductor mega cap that is a global leader in gaming cards and accelerated computing hardware and software. The sell-off was driven by a near-term inventory correction in gaming as a result of a COVID-related pull forward in demand as well as the shift in the Ethereum cryptocurrency from proof-of-work to proof-of-stake. Additionally, investors are concerned over the potential slowdown in data center revenues as a result of a weaker macroeconomic environment as well as the recently announced limitations on semiconductor shipments to China. Despite the near-term uncertainty, we believe that NVIDIA’s end-to-end AI platform and its leading market share in gaming, data centers, and autonomous machines, along with the size of these markets, would enable the company to benefit from durable growth for years to come and therefore view the stock price where we added shares as a compelling value for long-term investors. With demand for computing power doubling every one to two years, and Moore’s Law slowing down, there is more need for computing than ever. At the same time, “near free” supply growth (that was possible thanks to Moore’s Law) has slowed dramatically. NVIDIA’s accelerated architecture, with parallel computing at scale, answers that need.”
8. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 91
Dividend Yield as of November 2: 1.20%
UnitedHealth Group Incorporated (NYSE:UNH) operates as a diversified health care company in the United States. The company specializes in health insurance, Medicaid plans, and healthcare programs. On October 14, UnitedHealth Group Incorporated (NYSE:UNH) reported a Q3 non-GAAP EPS of $5.79 and a revenue of $80.9 billion, outperforming market estimates by $0.35 and $360 million, respectively. There was a double digit growth at both Optum and UnitedHealthcare segments.
The company raised its full-year 2022 net earnings outlook to $20.85 to $21.05 per share and adjusted net earnings to $21.85 to $22.05 per share, versus a consensus of $21.89 and prior view of $21.4 to $21.9.
On October 18, Deutsche Bank analyst George Hill raised the price target on UnitedHealth Group Incorporated (NYSE:UNH) to $615 from $569 and maintained a Buy rating on the shares. The company reported robust Q3 results as membership growth remains resilient and value-based arrangements continue to expand, the analyst told investors in a research note.
According to Insider Monkey’s data, 91 hedge funds were long UnitedHealth Group Incorporated (NYSE:UNH) at the end of June 2022, compared to 103 funds in the prior quarter. Rajiv Jain’s GQG Partners is the largest position holder in the company, with 3.11 million shares worth $1.60 billion.
In its Q2 2022 investor letter, Carillon Tower Advisers, an asset management firm, highlighted a few stocks and United Group Incorporated (NYSE:UNH) was one of them. Here is what the fund said:
“UnitedHealth Group Incorporated (NYSE:UNH) reported solid quarterly results and raised 2022 guidance modestly. Additionally, managed care is another industry that is viewed as defensive in the current environment, which helped support UnitedHealth and its peer group.”
7. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 93
Dividend Yield as of November 2: 0.24%
Thermo Fisher Scientific Inc. (NYSE:TMO) is a Massachusetts-based provider of life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products and services worldwide. As per elite hedge funds, Thermo Fisher Scientific Inc. (NYSE:TMO) is one of the premier picks for a dividend stock portfolio.
On October 31, Thermo Fisher Scientific Inc. (NYSE:TMO) announced that it is acquiring the UK-based diagnostic products maker, The Binding Site, for $2.6 billion from private equity firm Nordic Capital in an all-cash transaction. Thermo Fisher Scientific Inc. (NYSE:TMO) also said that throughout Q4, it expects to execute a $1 billion share buyback program, bringing the total capital spent on buybacks in 2022 to $3 billion.
Baird analyst Catherine Ramsey Schulte on November 1 reiterated an Outperform rating on Thermo Fisher Scientific Inc. (NYSE:TMO) but lowered the price target on the shares to $665 from $695. The analyst noted that Thermo Fisher Scientific Inc. (NYSE:TMO)’s Specialty Diagnostics segment typically gets the least investor attention and interest, but she forecasts the deal to be accretive to both overall revenue growth and margins. She also updated her model to factor in the acquisition, Q4 and full-year buyback assumptions, and 2023 forex headwinds.
According to Insider Monkey’s data, 93 hedge funds were bullish on Thermo Fisher Scientific Inc. (NYSE:TMO) at the end of June 2022, compared to 101 funds in the prior quarter. Thomas Steyer’s Farallon Capital is a prominent stakeholder of the company, with 1.2 million shares worth $675 million.
Here is what Baron Funds specifically said about Thermo Fisher Scientific Inc. (NYSE:TMO) in its Q3 2022 investor letter:
“Thermo Fisher Scientific Inc. (NYSE:TMO) is the world’s largest life sciences tools company. Shares fell due to the rotation out of life sciences tools stocks, driven by concerns about a possible global recession, foreign currency exposure, COVID-related lockdowns in China, and reduced levels of biotechnology funding. We continue to believe Thermo Fisher has a strong long-term growth outlook given a large and growing addressable market coupled with its industry-leading scale, commercial infrastructure, e-commerce platform, supply-chain capabilities, and R&D investment.”
6. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
Dividend Yield as of November 2: 2.42%
Bank of America Corporation (NYSE:BAC) is an American multinational company that provides banking and financial products and services. The bank operates through Consumer Banking, Global Wealth & Investment Management, Global Banking, and Global Markets segments. On October 17, Bank of America Corporation (NYSE:BAC) reported earnings for the third quarter of 2022, announcing earnings per share of $0.81 and a revenue of $24.50 billion, topping market estimates by $0.04 and $1.05 billion, respectively.
On October 19, Bank of America Corporation (NYSE:BAC) declared a quarterly dividend of $0.22 per share, in line with previous. The dividend is distributable on December 30, to shareholders of record on December 2. Bank of America Corporation (NYSE:BAC) delivers a dividend yield of 2.42% as of November 2.
BMO Capital analyst James Fotheringham raised the price target on Bank of America Corporation (NYSE:BAC) on October 18 to $42 from $41 but kept a Market Perform rating on the shares. The analyst cited Bank of America Corporation (NYSE:BAC)’s "impressive" Q3 top-line beat and "meaningful" operating leverage as its pre-provision net revenue grew 24% compared to Q2 2022. However, the analyst added that it remains too early to purchase bank stocks, and he believes that Bank of America Corporation (NYSE:BAC) stock will struggle until the economic backdrop stabilizes.
Among the hedge funds tracked by Insider Monkey, 99 funds were bullish on Bank of America Corporation (NYSE:BAC) at the end of Q2 2022, with collective stakes worth $36 billion. Warren Buffett’s Berkshire Hathaway is the biggest stakeholder of the company, with more than 1 billion shares worth $31.4 billion.
Like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Mastercard Incorporated (NYSE:MA), Bank of America Corporation (NYSE:BAC) is one of the premier stocks to consider for a robust dividend stock portfolio.
Here is what Artisan Partners specifically said about Bank of America Corporation (NYSE:BAC) in its Q2 2022 investor letter:
“We made only one new purchase during the quarter, initiating a position in Bank of America (BAC). As one of America’s largest banks, Bank of America Corporation (NYSE:BAC) is second only to JPMorgan Chase (JPM) in size and is probably its closest peer. Both are well-run banks, but compared to JPM, since the GFC, BAC has retired more shares, grown EPS faster and currently has more capital and a lower dividend payout. We are attracted to BAC’s strong capital base, high capital generation capacity, large loan loss reserve, low (~50%) loan/deposit ratio, short duration investment securities book, and low dividend payout that provides financial flexibility. BAC has a less volatile earnings stream than JPM with lower capital market sensitive exposures. Additionally, BAC is rigorously stress tested by the Fed every year in quantitative and qualitative fashion. Warren Buffett’s Berkshire Hathaway, which we hold in the portfolio, owns 12% of BAC. He petitioned the Fed to own more than 10%, so he clearly likes it. Bank stocks were strong gainers in 2021 on the prospects of higher rates boosting net interest margins, but the stocks pulled back in the first half of 2022 on economic concerns. We believe BAC has massive scale advantages, should benefit from increasing interest rates, particularly in the 2-year part of the yield curve, and should grow over time with the economy. The economic environment is highly uncertain, but current consensus includes the provision for losses more than doubling and capital markets activity slowing. Against that backdrop, our purchase price equated to about 8.5X our estimates of “mid-cycle” earnings. With leading businesses, a double-digit ROE, a prudent capital return strategy and a strong balance sheet, we believe this entry point offers a solid long-term value.”
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Disclosure: None. Dividend Stock Portfolio: Top 10 Stock Picks By Hedge Funds is originally published on Insider Monkey.
