Dividend Stocks From the portfolio of Stephen Mandel’s Lone Pine Capital

Aubrey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

For me, nothing beats the security a stable stream of dividend income provides. I looked at Stephen Mandel’s portfolio to see which stocks are the top income-earning ones. I analyzed the current performance of each to see whether these are likely to provide safe dividend income or not. Stephen Mandel is the founder of Lone Pine Capital LLC, a privately owned mega hedge fund that has over $16 billion assets under management. Mandel goes after stocks with valuations that are lower than their intrinsic values. The Lone Pine Capital is known to have consistently beaten the S&P 500 index by a remarkable 20% points since its inception.

Ralph Lauren Corporation (NYSE: RL)

Lone Pine had maintained its stake worth over $600 million in Ralph Lauren in the latest quarter. The hedge fund’s stake represented 7.19% of Ralph Lauren’s total institutional shares. Looking at the numbers, the textile-clothing company shows an encouraging growth prospect. Earnings per share are estimated to grow by 15.27% next year. The long term annual growth estimate of the EPS is currently at 12.38%. Meanwhile, the quarterly profit margin is within its historical range, at approximately 10%. RL's dividend yield is a modest 1.02%, but it has not wavered in paying stable dividends to its shareholders. In fact, the annualized dividend for the current year is 56% higher than that for 2011. With such an encouraging growth potential, impressive record in dividend payment, and sound financial standing (its long term debt to equity ratio is at 0.07); it is difficult to deny this company's ability for safe and stable dividend income.

 

<img src="/media/images/user_15403/lone-pine-1_large.jpg" />

Source: nasdaq.com; as of January 3, 2013

Kinder Morgan, Inc. (NYSE: KMI)

Lone Pine had also held on its stake in Kinder Morgan worth over $600 million. As of the end of September 2012, the position formed 3.8% of the hedge fund's total portfolio and 2.99% of KMI's institutional ownership. Kinder Morgan is in for an incredible growth performance given the current surge in energy production in North America. After tripling its EPS this year, the momentum is not about to die down yet. Earnings per share are likely to grow by 61.90% next year. In fact, investors can look forward to an estimated 33.56% growth in the EPS each year in the next 5 years. In spite of experiencing losses recently, the profit margin had bounced back to approximate the rate in the same period last year. The yield is currently at an impressive 3.89%. Since October in the previous year, the dividend amount had been increasing in each payment.

However, the payout ratio of KMI had ballooned to a high 104.88%, way above the historical level of 24.97%. Let's see if it can lower this ratio soon given its impressive growth prospect. In the meantime, watch out for possible liquidity problems as the company’s long term debt to equity is still high at above 2. I believe KMI is yet to prove its ability to pay stable dividends in the long term.

 

<img src="/media/images/user_15403/lone-pine-2_large.jpg" />

Source: nasdaq.com, as of January3, 2013

Monsanto Co. (NYSE: MON)

After a long streak of purchasing Monsanto shares, Lone Pine sold 21% of its holding in the latest quarter. The agricultural products company’s main strengths are in its profitability and sound financial management. The current net profit margin is 15.45%. Its EPS had grown by 27.56% this year and is positioned to maintain the double-digit growth, at 14%, next year. Likewise, it continues to experience declining debt to equity ratio. Monsanto is a loyal dividend payer with a decent yield at 1.57%. The latest amount, $0.375 to be paid on January 25, 2013 is 22% higher than the amount given in the same period last year. Investors can expect stable dividend income from Monsanto as its payout ratio remains encouraging at 33.45%. The world’s biggest seed company recently reported that a 5-year probe into its seed and herbicide business by several states has concluded. The probe was related to the production and marketing of a weed-killer, and licensing of genetically modified crops. The states, the report says, will take no further action against the company.

 

<img src="/media/images/user_15403/lone-pine-3_large.jpg" />

Source: nasdaq.com; as of January 3, 2013

Walt Disney Co. (NYSE: DIS)

Lone Pine Capital decreased its position in Walt Disney by 20% in the third quarter bringing the total holdings to 9.362 million or 2.97% of its total portfolio. Walt Disney’s strength lies in its profitability, growth prospect, and sound financial management. The earnings per share grew by 24.12% this year. The double-digit growth is expected to continue within the next year. In fact, analysts put the long term annual EPS growth at 12.35% for the next 5 years. Its profitability is impressively inching upwards. The profit margin for the end of the third quarter was 10% higher than that for the previous year, and about 30% above that for the same period in 2010.

The entertainment giant has an outstanding record of paying its investors increasing dividends since 2009, with the increase averaging at roughly 25% each year. Investors can also expect for a safe dividend income in the future as the company’s payout ratio remains stable at below 20%. Meanwhile, the debt-to-equity ratio continued to decline from 0.40 in the end of the first quarter to 0.357 in the second and then to 0.3411 in the end of the third. The company that operates ABC, ESPN, and Disney is seen by analysts as “a wonderful company with a fair price,” hence, it should be an attractive addition to one’s investment portfolio. After looking at the fundamentals, I don’t have a reason to believe otherwise.

<img src="/media/images/user_15403/lone-pine-4_large.jpg" />
 

Source: nasdaq.com, as of January 3, 2013

Schlumberger Limited (NYSE: SLB)

Lone Pine Capital purchased Schlumberger stocks anew in the latest quarter. The position formed 2.82% of its total portfolio. The company is widely active not only in the discovery, but also in the production spectrum. It had recently entered into a deal with Petrobras to study pre-salt reservoir development and Cameron International for developing and producing products for the subsea oil and gas market. Hence, the company exhibits an impressive growth prospect. Analysts put the EPS growth estimate at 15.48% next year. In the next 5 years, earnings per share are expected to swell by 16.18% each year on the average. Since June 2006, the company had been paying its investors stable and increasing dividends. The latest payment, at $0.275 per share, was roughly 10% higher than that paid in the same period last year. Also, the company is able to maintain a profit margin above 10% and a debt-equity ratio below 0.40. With its payout ratio staying below 30%, this stock is undeniably attractive for those wanting for a safe stream of dividend income.

 

<img src="/media/images/user_15403/lone-pine-5_large.jpg" />

Source:nasdaq.com, as of January 3, 2013


aubrey1102 has no position in any stocks mentioned. The Motley Fool recommends Kinder Morgan and Walt Disney. The Motley Fool owns shares of Kinder Morgan and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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