Billionaire Louis Bacon’s 5 Dividend Picks
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Louis Bacon Moore established his investment firm, Moore Capital Management, in 1989. The company has total assets under management of $15 billion. It applies a macro investment strategy, aiming to profit from broad economic trends. The firm’s two flagship funds include a $7.4 billion Moore Global Investment Fund and the $4.6 billion Moore Macro Managers Fund.
Moore Global Investments has returned 18.8% per year since inception in 1989. That strong performance propelled Bacon to become one of the most renowned macro hedge fund managers, alongside Paul Tudor Jones and Stanley Druckenmiller. However, in 2011, Moore Global Investments fell 2.2%, underperforming its past returns, but outperforming the average hedge fund that slid 5.1% in 2011 and macro hedge funds that dropped 3.9% (Bacon’s Moore Global Investments charges high management fees totaling 3% of assets under management and a performance fee equivalent to 25% of the fund's annual returns).
Louis Bacon has a net worth of $1.4 billion and is the 913th richest person in the world and the 330th richest man in the United States.
Here are his five largest position that pay dividends:
JPMorgan Chase & Co. (NYSE: JPM) is the third largest position in Bacon’s hedge fund portfolio, according to the fund’s latest 13F filing. That stake is currently valued at $238.5 million. JPMorgan, the largest U.S. bank by asset size, is paying a dividend yield of 3.5% on a payout ratio of 28%. Its peers Citibank (C), Bank of America (BAC), and Wells Fargo Corporation (WFC), pay dividend yields of 0.2%, 0.6%, and 2.6%, respectively. The bank recently beat analyst estimates for both revenues and earnings, despite its infamous credit derivatives trading loss swelling to nearly $6 billion from the initially estimated $2 billion. The bank is trading below book value, at a price-to-book ratio of 0.8 versus 0.7 for the overall industry. Its ROE of 9.5% is higher than the industry’s average. On a forward P/E basis, the stock is really cheap, trading at a major discount to the banking industry. The shares are changing hands at around $36 a share, down 9.3% over the past year. Fund managers Ken Fisher, Lee Ainslie, John Paulson, D. E. Shaw, Cliff Asness, Leon Cooperman and many others are big fans of the stock.
Wells Fargo & Company (NYSE: WFC) is another banking stock in Bacon’s portfolio. The position, worth some $233 million at current stock prices, was Bacon’s new pick in the first quarter and the fourth largest position in his portfolio. The bank is the fourth largest bank in the U.S. by asset size. It is both a growth and value play. As one of the nation’s largest mortgage lenders, the bank has benefited tremendously from the ongoing refinancing boom, despite lower interest rates that are squeezing interest margins. Going forward, the banking business environment will be challenging due to a weak economy that will limit commercial lending opportunities. Also, the current refinancing boom will slowly fade. Still, the bank remains attractive on a number of valuation metrics. Its ROE of 12.4% is well above the industry’s average. In fact, based on profitability, capital adequacy, and asset quality, the bank is ranked 3rd best in the nation, according to a just-released Bank Director’s “2012 Bank Performance Scorecard.” The bank’s price-to-book of 1.4, higher than the industry’s average, is still historically low. Wells Fargo pays a dividend yield of 2.6% and has a dividend payout ratio of 30%. Peers JPMorgan Chase (JPM) and Bank of America (BAC) are yielding 3.4% and 0.6%, respectively. The stock is currently trading at a forward P/E below the industry's ratio. The stock is changing hands at around $34 a share, up 21% over the past year. The company is popular with Warren Buffett, Ken Fisher, and Dan Loeb.
U.S. Bancorp (NYSE: USB) is the third banking stock and the sixth largest position in Bacon’s portfolio. Based on the number of shares owned at the end of the first quarter, that stake is currently valued at $175 million. U.S. Bancorp is the eight largest U.S. bank by asset size. It pays a dividend yield of 2.3% on a payout ratio of 29%. Its peers Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo & Company (WFC) yield 0.6%, 3.4%, and 2.6%, respectively. The bank’s stock has rallied to a new 52-week high of $34.09 per share. It is currently somewhat pricey based on its price-to-book ratio that is more than double the average for the industry, but still below the 10-year average. The bank has a high ROE of 16.5%, well above the average for its industry. The shares are up 30% over the past year. Legendary investor Warren Buffett and fund manager Andreas Halvorsen are bullish about the stock.
Marathon Oil Corporation (NYSE: MRO) is the 13th largest holding in Bacon’s portfolio. That position is currently valued at $76 million. The company is a $19 billion integrated energy business that produces and sells oil, natural gas, natural gas liquids, and bitumen. It pays a dividend yield of 2.6% on a payout ratio of 20%. The company’s competitors BP Plc (BP), Chevron Corporation (CVX), and ConocoPhillips (COP) pay dividend yields of 4.7%, 3.3%, and 4.9%, respectively. According to Fitch, the company has “reasonably diverse upstream portfolio; high exposure to liquids in the upstream; recently solid operational performance; robust liquidity; strategically implemented asset sales and capex cuts; and debt reductions.” Nevertheless, the company has been struggling with subpar production growth; it may need to increase spending to boost output. Still, analysts are quite bullish about the company’s earnings, seeing EPS growth at an average rate of 11.4% per year for the next five years. The company has a free cash flow yield of 4.7% and an ROE of 8%. On a forward P/E basis, the shares are trading at a discount relative to the industry. The stock is trading at $27 a share, down 13% over the past year. The stock is also popular with billionaire Cliff Asness.
Williams Companies Inc. (NYSE: WMB) is another large position in Bacon’s portfolio. That stake is currently valued at nearly $60 million. With a total market capitalization of $19 billion, the company produces and processes natural gas and operates an energy infrastructure system of natural gas pipelines in the United States. The company pays a high dividend yield of 4.0% on a payout ratio of 158% of earnings. Williams Companies posted lower earnings in the past quarter and reduced its EPS guidance for 2012 and 2013 due to lower NGL prices. However, it upped the 2014 guidance. At the same time, the company announced an update to its plan to pay higher dividends. It will boost its dividend payout by 55% in 2012 from the 2011 level and then again by another 20% per year in both 2013 and 2014. Higher dividends will be supported by the company’s “fee-based businesses and the commencement of new projects.” The company's peers Kinder Morgan, Inc. (KMI), Enbridge, Inc. (ENB), and Spectra Energy Corp (SE) pay yields of 3.9%, 2.7%, and 3.7%, respectively. The stock is trading at a major premium to its industry on a forward P/E basis. The shares are changing hands at just under $32 a share, down 0.6% over the past 12 months. Billionaires Leon Cooperman and Israel Englander are also major investors in the company.
This article is written by Serkan Unal and edited by Meena Krishnamsetty. Meena has long positions in C and COP.The Motley Fool owns shares of JPMorgan Chase & Co. and Wells Fargo & Company and has the following options: short OCT 2012 $33.00 puts on Wells Fargo & Company and short OCT 2012 $36.00 calls on Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.