Top Dividend Stocks from Lone Pine Capital’s Portfolio
Aubrey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Value investors can get some great ideas from a hedge fund as successful as Stephen Mandel’s Lone Pine Capital. From its inception in 1997 with only a mere $8 million, Lone Pine Capital has turned into a giant fund that now has $15.9 billion in assets under management. What is outstanding about this fund is its consistent lead by over 20% against the S&P 500 index since its humble beginnings.
I looked at the top dividend stocks of Lone Pine Capital and I came up with ones that, based on some fundamental measures, illustrate the ability to sustain stable dividend payments to investors. These stocks are growing quite impressively in terms of revenues, they are highly productive, and were able to grow their dividend payments at double-digit rates. All of these companies have been exceeding earnings expectations and have good payout ratios.
Sources: finviz.com, marketwatch.com, and whalewisdom.com; data retrieved March 30, 2013
Ralph Lauren Corporation (NYSE: RL)
Ralph Lauren is quickly becoming a favorite for dividend income lovers. It has grown its annualized dividend payment at an average rate of 65% during the previous 4 years. The company’s payout ratio based on cash flow is only 8.39%. Moreover, it enjoys a double-digit net margin and has recently shown a positive 2.24% year-over-year growth in quarterly revenues. This has led RL to surpass consensus estimates in its earnings; in fact, it has been exceeding expectations during the last four quarters. The company attributes this renewed momentum to the strong demand in the Americas, an improved business in Europe, and the rapidly growing e-commerce segment. The sales forecast has actually been increased for the fiscal year starting in April.
Gap, Inc. (NYSE: GPS)
Gap is a consistent dividend income generator. It has grown its payment by an average rate of 17.6% in the last four years. The last quarterly revenue report shows an outstanding year-over-year growth of 10.32%. In fact, Gap has not failed to meet or even exceed earnings expectations in the last four quarters. Combine this with a relatively better profit margin, a payout ratio based on cash flow of only 10.32%, and a P/E ratio of 15.19, and you have a powerful source of safe and growing dividend income.
Take advantage of this momentum today. The earnings per share for the quarter ending in April have been revised upward five times already, compared to two downward revisions. Moreover, the forward P/E ratio is at 12.12. Despite the weak consumer confidence, Gap is hardly on the losing end because of its broad mix of pricing, which appeals to price-conscious consumers. The company is also lauded for its efficiency, shown by its prudent inventory management and relatively shorter cash conversion cycle compared to say, Abercrombie.
Monsanto Co. (NYSE: MON)
Another dividend stock in Lone Pine Capital’s portfolio that has caught my attention is Monsanto. This company has grown its dividend payment by an average rate of 11.61% from 2009 to 2012. It exhibits its ability to raise dividends through its low payout ratio based on cash flow at 21%. With the current double-digit profit margin and an impressive quarterly revenue growth of over 20% year-over-year, any dividend income investor would be pleased with Monsanto’s current performance. No wonder its EPS has exceeded the consensus estimate in the latest quarter by a wide margin of 67%.
Recent news of Monsanto’s coming to terms with DuPont on the antitrust and patent rift between the two will positively impact the company. The two companies came up with a licensing agreement that asks DuPont to make annual royalty payments to Monsanto amounting to $1.752 billion within the period 2014 to 2023. If you have not seriously considered taking a look at Monsanto yet, you better start now. Strong and safe dividend income awaits you.
Qualcomm Incorporated (NASDAQ: QCOM)
Qualcomm has also significantly increased its dividend payment through the years, averaging 11.72%. This company can hardly go unnoticed for its payout ratio based on cash flow of 26.33%, which is fairly sustainable given its recent performance in profitability and revenue growth. The company is outstanding, with a profit margin of over 28% and a quarterly revenue growth of 26% year-over-year. Indeed, the company has shown positive earnings surprises in the last two quarters. There is no reason to believe that dividend payment will not grow in the same direction as it did in the previous years because Qualcomm sits on an increasing amount of free cash flow, and this growth came mainly from its core business operations. With the leading mobile chipset maker expanding into new markets like Vietnam, a commanding lead in 4G wireless communication technology, and a lower-than-normal P/E ratio of 20.10, the best time to ride the huge potential growth is now.
Lone Pine Capital's portfolio has these powerful dividend income generators in it. I would not wait to take on Qualcomm for its outstanding performance and huge growth prospects. But the rest are equally attractive as well, and each can potentially put on a great show in 2013. I strongly suggest you take a look at all of them, and do so fast.
Aubrey Tabuga has no position in any stocks mentioned. The Motley Fool owns shares of Qualcomm. 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!