Top Dividend Stocks Favored By Bill Ackman

By Dr. Osman Gulseven - December 28, 2012 | Tickers: BEAM, BKW, CP, GGP, PG | 0 Comments

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Pershing Square Capital Management is an activist hedge fund founded and managed by Bill Ackman. The fund had $8.929 billion under its management in the latest quarter. Pershing holds an outstanding record of 24% in average annualized returns since its inception in 2004. The fund utilizes a fundamental analysis approach to investment. Bill Ackman devotes his assets to equity, fixed income instruments, and derivative instruments worldwide. He is famous for having grown his money from $6.7 billion to $10.3 billion within four months in 2008.

At the end of the third quarter, the hedge fund bought new or additional shares in 8 stocks. Among these, I looked at the dividend and growth stocks it favored the most to see whether these are worth buying or not. These stocks are Canadian Pacific Railway Limited (NYSE: CP), Procter & Gamble (NYSE: PG), General Growth Properties Inc. (NYSE: GGP), Beam, Inc. (NYSE: BEAM), and Burger King Worldwide (NYSE: BKW). I analyzed each stock from a fundamental perspective - focusing on growth in earnings and margins as well dividends.

Annual Dividend Payments ($)

Canadian Pacific Railway Limited

The hedge fund has held on to its stake in the company in the latest quarter. The railway company stock formed a commanding 22.43% of Pershing's total portfolio. Pershing initiated its position in the company during the same quarter last year. Since then, the holding has become the constant No. 1 in Pershing Square's portfolio.

Canadian Pacific Railway Limited is a transcontinental railway company that provides transportation and logistics services in Canada and the US. The company is currently undertaking a major revamp that will make its operations more efficient and its train services faster and better. It has improved intermodal and merchandise train service, closed hump-switching yards in several areas to save on costs, and improved train service and network velocity. Also, it will reduce some 4,500 employees or contractor positions, employ new longer sidings program, relocate its headquarters, and explore and review options to ensure continued growth. These are some of the factors that make CP a company to watch for in the coming years.

Based on end-of-quarter data, the company's profit margin has been stable in the recent quarters. Despite the losses it incurred this year, the EPS is expected to grow by 33.20% next year. In fact, the earnings per share will likely grow at a double-digit rate, 16.04%, in the next 5 years. Meanwhile, year-on-year quarterly sales are showing better figures than that for the annual average in the last 5 years. In terms of dividend, the railway company has a yield of 1.39%. It has an impressive record of paying increasing annual dividends to its investors since 2007. Although the payout ratio has recently inched up to 32.28%, investors seeking for a stable dividend income can count on this company given the promising growth prospects it has.

Procter & Gamble

Pershing increased its position in the company by 27% in the latest quarter. Based on whalewisdom.com compilation, the hedge fund initiated its position in the second quarter of the current year with an intention to advocate changes in the company. P&G did not appeared in the 13F filing of Pershing in last seven quarters. As of the end of September, the stake comprised of 21.71% of the hedge fund's total portfolio.

The consumer conglomerate has failed to show signs of growth despite implementing a cut to non-manufacturing jobs. Furthermore, P&G plans to repurchase $6 billion worth of its shares in the coming year to boost its EPS. Ackman had been pushing to cut costs and revive innovation in the company. In fact, the fund manager had been pushing the CEO Robert McDonald to increase earnings or step-down. However, the company has not yet taken action and maintains that it is focused on its turnaround plan.

The company's quarterly profit margin has slightly declined in the latest quarter. Earnings per share are yet to recover from its 19.10% plunge this year. Despite this, P&G has a yield of 3.31% and continues to pay stable dividends. In fact, the latest payment, of $0.562, is a bit higher than that for the same quarter last year. Meanwhile, the payout ratiohas grown from 43.93% to 68.24%. The company needs to show some positive revenue growth if it seeks to continue giving stable dividends. The quarterly sales have recently contracted by 3.67% (year-on-year). P&G, as an analyst notes, is not the best position if one wants top-notch gains in 2013.

General Growth Properties

Bill Ackman continued to favor General Growth by buying an additional2.5 million shares in the latest quarter. The hedge fund has been holding on to its stake in the company for the last 8 quarters. As of the end of September, the GGP represented 6.30% of Pershing's total investments. General Growth Properties is a real estate investment trust operating in two segments- retail and other; and master planned communities. The Chicago-based REIT will pay its quarterly dividend of $0.11 per share on January 4th. The amount represents a 10% rise from the same period a year ago.

Although the REIT showed an outstanding EPS growth this year of 61.44%, it is currently operating at a profit margin of -36.12%. The company has to boost its sales. Sales have barely improved as shown by a quarterly revenue growth of 2.62% year-on-year. Nevertheless, GGP continues to pay stable dividends. It has a dividend yield of 2.26%. Analysts expect the company to achieve an EPS growth of11.30% next year.

Beam, Inc.

The hedge fund has maintained its 20.818 million shares in Beam. Beamengages in the production and marketing of distilled spirits products around the world. It is formerly known as Fortune Brands, Inc. and has made a name for its bourbon whiskey, Scotch whiskey, and Canadian whiskey, among others. Rumors about acquisition of the company by Diageo have died down; however, some analysts still believe there is apossibility of it happening in 2013. Diageo, a report says, wants to add beam's famous bourbon brand to its own portfolio.

The company has recorded negative EPS growth of 57.89% this year, but estimates for the coming years are better. Earnings per share are expected to grow by 10.88% next year or at an average annual rate of 11.25% in the next 5 years. Compared to previous years when sales have contracted by an average rate of roughly 23%, quarterly revenue had shown some progress; it went up by 8.34% year-on-year. Likewise, Beam has been doing well in its margins; the recent quarterly data at Finviz.com shows double-digit net margins. The company continues to pay its investors stable dividends since the second quarter of 2009.

Burger King Worldwide, Inc.

Bill Ackman initiated a position of around 38.361 million shares or roughly $534 million in Burger King in the latest quarter. This is the first time that the company has appeared in the 13F of Pershing within the last 2 years. Burger King Worldwide operates fast food hamburger restaurants worldwide under the Burger King brand.

The Miami-based company recently announced the joint venture agreement with Alsea, S.A.B. de C.V. The venture aims to significantly increase the brand's presence in Mexico as it will own 203 Burger King restaurants in the country and has committed to open several hundred branches more in the coming years. ALSEA is a leading operator of quick service restaurants in Latin America. It has been operating Burger King restaurants in Mexico for over 10 years now. In 2012, in addition to Mexico, BKW had also successfully introduced such joint ventures with a similar focus in South Africa, Russia, and China.

The company is certainly one that investors should watch out for in 2013. Based on finviz.com, the EPS is expected to grow robustly next year, at 20%. Earnings per share are expected to go up by an average annual rate of 18.25% in the next 5 years. With the joint ventures it had successfully pulled-off and some menu updates, the future indeed looks bright for this company. Meanwhile, Burger King has a dividend yield of 0.97%. Compared to Pershing Square's other top dividend stocks, Burger King is one that is yet to prove that it can continue to pay stable dividends.

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