Hedge funds had a very rough 2015, partially because the market performance overall was lousy, and many of them have started 2016 exactly the same way, with some down big already. One reason hedge funds perform badly is they tend to share ideas, which is great if they are good, but if they are bad, like Valeant Pharmaceuticals was last year, it can be disastrous.
A new FactSet research report reviews numerous holdings and metrics at the top 50 hedge funds. We looked through the 50 top holdings to find out which dividend stocks made the cut with the top portfolio managers. We found five that our readers may find interesting.
AbbVie
This is the new top global pharmaceutical stock at Jefferies and it caught an upgrade to Buy Tuesday at Citigroup. Some 17 hedge funds own AbbVie Inc. (NYSE: ABBV) stock, and more could be looking to add it. The global, research-based biopharmaceutical company was formed in 2013 following separation from Abbott Laboratories. Its mission is to develop and market advanced therapies that address some of the world’s most complex and serious diseases.
A major concern is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That $14 billion is the most any drug has recorded during a single year and represents a gigantic part of the AbbVie’s overall earnings. The problem is that biosimilars and generics are itching to enter the market, with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend.
Jefferies has become much more positive on the stock and feels that the company’s response to Coherus’s Inter Partes Review (IPR) on key Humira patents looks solid and an IPR denial is a very real possibility.
AbbVie reported mixed fourth-quarter numbers but affirmed guidance, and some on Wall Street were concerned over a new hepatitis C drug from a rival company. The reported earnings were up 27% from the year-earlier quarter and a penny over consensus estimates. Revenue rose 18% but came in below estimates.
AbbVie investors receive a 4.14% dividend. The Thomson/First Call consensus target is $72.25. Shares closed Tuesday at $55.07.
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Pfizer
Hedge funds also like this top pharmaceutical stock, as a total of 22 own it now. Pfizer Inc. (NYSE: PFE) has a very strong pipeline, and being the world’s largest drug manufacturer by sales value supports the Wall Street notion that the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years.
Also, Pfizer announced recently the details in what would be one of this year’s biggest deals, a $160 billion merger with Allergan. But the Treasury Department said recently that it is working on new rules for corporate tax inversions, which the Pfizer/Allergan deal could be, and that could possibly throw a wrench into the negotiations. Pfizer executives maintain that the government will not scuttle the deal.
Pfizer has announced that it is starting 20 clinical trials this year and more soon after on treatments to conquer cancer, as it also seeks to gain leadership in one of the hottest and most lucrative areas of medicine.
Investors receive a 4.02% dividend. The $39.13 consensus price target compares to Tuesday’s close at $29.96.
McDonald’s
The fast-food giant has been on fire over the past six months but still remains a solid pick for investors seeking dividends and a degree of safety. Hedge funds are very bullish on the company and 20 now own the stock. McDonald’s Corp. (NYSE: MCD) is the world’s leading global foodservice retailer, with over 36,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local business men and women.
Many on Wall Street are very pleased with the efforts from new CEO Stephen Easterbrook, who has taken the bull by the horns with a strategic corporate reset by changing the menu, updating the hours breakfast is served and modernizing the restaurants. Management has prioritized dividend growth as a key element of its shareholder value proposition. McDonald’s has increased its dividend every year for the past 39 years.
The company reported outstanding fourth-quarter results in late January, with U.S. same-store sales rising an impressive 5.7%, boosted by all-day breakfast. The analysts raised their 2016 earnings estimate from $5.25 to $5.30 per share.
McDonald’s investors receive a 3.05% dividend. The consensus price target is posted at $126, and the stock closed Tuesday at $116.90.
General Electric
This iconic company was on a strong roll to end last year, but it sold off last month, giving investors a nice entry point. A total of nine hedge funds currently own General Electric Co. (NYSE: GE), which is a highly diversified, global industrial corporation with products and services that include power generation equipment, aircraft engines, locomotives, medical equipment, appliances, commercial leasing and personal finance. Merrill Lynch feels that GE will be a large player in the efficient energy field.
The company is in the middle of a huge effort to scale back many of its operations and return capital to shareholders. The restructuring plan GE announced last year includes buying back up to $50 billion of its shares, selling about $30 billion in real estate assets over the next two years and divesting more GE Capital operations. The continued restructuring and sale of the appliance division provides some cushion to earnings estimates
Fourth-quarter numbers were solid, though somewhat hampered by slower organic growth and the Alstom power division purchase, which the company purchased from the French turbine maker. The deal was finalized in November for $10 billion, creating a $50 billion turbine services backlog.
Investors receive a 3.15% dividend. The consensus price target is $32.29. Shares closed Tuesday at $29.22.
Microsoft
This old-school technology company has a massive $99 billion sitting on the balance sheet, and 24 hedge funds own the stock now. Microsoft Inc. (NASDAQ: MSFT) develops, licenses and supports software products, services and devices worldwide. Its Devices and Consumer Licensing segment licenses Windows operating system and related software, Microsoft Office for consumers and the Windows Phone operating system. Its Computing and Gaming Hardware segment provides Xbox gaming and entertainment consoles and accessories, second-party and third-party video games and Xbox Live subscriptions, as well as Surface devices and accessories and Microsoft PC accessories.
Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service. This could be one major reason so many hedge funds are bullish on the company.
Microsoft investors receive a 2.8% dividend, and the forward valuation remains compelling. The consensus price target is $58.56. Shares closed trading on Tuesday at $51.55.
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There you have it, five top blue chip dividend stocks that the hedge fund community are big fans of. All these stocks make good sense for long-term patient investors that have a growth and income total return bias in their portfolios.
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