A Look at David Tepper's Favorite Dividend Picks
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Appaloosa Management is an employee-owned hedge fund founded by David Tepper in 1993. The New Jersey-based hedge fund employs a fundamental analysis in its investments. It invests in equity, fixed income, and hedging markets. Appaloosa had returned 30% in 2010 and has been awarded the Institutional Hedge Fund Firm of the Year in 2011. Of course there have been periods where Tepper's fund had substantial losses. The fund also lost about 25% during the burst of the dotcom bubble, and during the subprime crises Appaloosa Management lost about 28% of its value. Despite his failures, Tepper had shown that he's got what it takes to come back big. He made a fortune betting on the recovery of big banks after the subprime crises.
Tepper's Appaloosa had over $4.019 billion in assets under management as of the end of the third quarter. Its portfolio focuses on the financial sector (32.99%), technology (25.53%), consumer cyclical (12.97%), transportation (11.8%), and basic materials (6.31%). I recently looked into the top dividend stocks of the hedge fund in the latest quarter: Huntsman Corporation (NYSE: HUN), JPMorgan Chase (NYSE: JPM), Whirlpool (NYSE: WHR), Two Harbors Investment (NYSE: TWO), and Chimera Investment (NYSE: CIM). I analyzed these stocks from a fundamental perspective to see whether they are worth buying or not. Investors who are on the lookout for stable dividend earnings should see what these stocks have to offer.
Sources: whalewisdom.com & finviz.com
Huntsman is a Salt Lake City-based company that manufactures and sells differentiated organic and inorganic chemical products. Its products are used in dye, textile chemicals, packaging, paints and coatings, power generation, construction products, adhesives, aerospace, and automotive industries around the world. The chemicals company had just reported third quarter adjusted earnings of 70 cents, surpassing the Zack consensus estimate of 51 cents. Earnings were boosted by improved results in the polyurethanes business and the restructuring measures the company had employed.
Appaloosa increased its stake in the company by 25% in the latest quarter. This brings the total holdings to 7.919 million, or 2.94% of its total portfolio. The hedge fund initiated its position in the first quarter, and then bought additional shares in the second quarter. Huntsman's share price gained an outstanding 63.29% from last year. Its growth prospects are encouraging, with its long term annual growth estimate of 7.38%. Earnings jumped by a massive 1,801.82% this year. Likewise, the company has a dividend yield of 2.50% and a flat dividend payment record for 6 consecutive years. So far, it exhibits the ability to raise dividends with a payout ratio at 18.90%, which is way below the historical level at 97.34%.
JPMorgan Chase & Co.
JPMorgan Chase is a giant financial holding company that provides financial services around the world. The company continues to face lawsuits concerning its Bear Stearns' acquisition. However, due to strong fundamentals, JPMorgan remains attractive to investors. It just surpassed analysts' estimates in terms of earnings in the third quarter. Moreover, the company just got the nod from the Federal Reserve regarding its first quarter 2013 share repurchase program. This gives JPMorgan great prospects for income and growth, which lures in investors.
The hedge fund initiated its stake in JPM in the latest quarter by purchasing over 2.397 million shares, the biggest so far in at last two years. This is equivalent to 2.41% of the firm's total portfolio. Recall that Appaloosa sold its holdings in the first quarter of 2011. That was the last time JPM had appeared in the 13-F filing of Appaloosa.
The stock price gained 26.39% from the previous year. The EPS is growing and will continue to grow by 6.96% each year in the long term. JPMorgan continues to show its prowess in terms of profitability at a net margin of 20.37%. Investors seeking dividend earnings should take JPM seriously, as it provides a high yield of 2.94%. The annualized dividend is showing an impressive trend since 2010. Meanwhile, the payout ratio has declined from a historical level of 36.41% to 25.19%, indicating a greater capacity to increase dividends payments.
Whirlpool is a leading manufacturer and marketer of home appliances. It supplies the world with laundry appliances, refrigerators, freezers, and kitchen appliances, among others. The company is currently enjoying the highest levels of shares since 2010. Appaloosa Management decreased its stake in the company by 7% in the third quarter. It is noted that the hedge fund initiated its position in the company only in the second quarter. Still, the holding formed a significant 1.34% of the hedge fund's total portfolio.
The stock surged by an outstanding 118.53% from the previous year, and earnings are estimated to increase by 30.64% next year. In the long term, investors can expect an average annual growth of 8.10% in earnings per share. Currently, the company has a dividend yield of 1.98%. It has a spotless record of stable and increasing dividend payments through the years. The payout ratio, though rose to 32.23%, is not too far from its historical ratio of 30.06%. Hence, its ability to raise dividends has not changed that much.
Two Harbors Investment Corp.
Two Harbors is a real estate investment trust [REIT] based in Minnetonka, Minnesota. Its business is focused on residential mortgage-backed securities [RMBS], residential mortgage loans, and residential real properties. The company has recently reported an expansion of its share repurchase program in an effort to enhance shareholder value. Appaloosa maintained its holdings in two in the latest quarter. The firm initiated a position early this year and sold a small portion in the second quarter. As of the end of September, the stock comprised 0.79% of the fund manager's total holdings.
The stock had gained 37.95% from the previous year. The company continues to attract investments with its high net margin of 39.40%. Its quarterly revenue growth of 86.46% is truly impressive. Two Harbors enjoy a huge dividend yield of 12.58%, and it has been paying stable dividends beginning in the end of 2009. On the other hand, the payout ratio has escalated from 43.35% to 217.68%, suggesting that its ability to raise dividends, holding other factors constant, has notably weakened.
Chimera Investment Corporation
Chimera is a mortgage-backed real estate investment trust operating in the US. Its investments concentrate in residential mortgage-backed securities, residential and commercial mortgage loans, real estate-related securities, and other asset classes. The company had recently announced that it will maintain aquarterly dividend of $0.09 per share for each of the first and second quarter of 2013. This was decided after reviewing the program of possibly having a portion of payout as non-ordinary income in the third and fourth quarter of 2012.
Appaloosa had doubled its stake in CIM in the latest quarter, bringing the total holding to 10.384 million, or 0.70% of the hedge fund's total portfolio. The fund manager initiated its position only in the first quarter of the current year.
The stock gained 19.91% from last year. It attracts investments with its impressive net margin of 58.57%. Likewise, investors can expect an annual growth in earnings of 5% in the next 5 years. Chimer's yield is a very high 13.28%. However, the annualized dividend payment has been declining since 2010, and investors have yet to see an improvement in the payout ratio, which had just swelled to 110.74% from a historical level of 34.75%. Nonetheless, as already mentioned, investors can rely on a stable $0.09 payment at least for the first 2 quarters of 2013.
ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of JPMorgan Chase & Co. 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!