Billionaire Activist Investor Paul Singer and His New Dividend Picks
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Billionaire Paul Singer founded Elliott Associates in 1977 and manages over $15 billion in assets. Singer has a JD from Harvard and spent time at various corporate law firms and the investment bank DLJ before founding Elliott. Singer employs an activist approach to investing, establishing large positions to turn around distressed and underperforming companies. The hedge fund manager has made some key moves as of late (see all of Singer's newest picks).
From Singer’s 3Q 13F we have identified five high dividend-paying stocks that Elliott Associates owned at the end of 3Q. Dividends play a big role in total stock market returns, and hence why we follow dividend-paying stocks and have a special appreciation for those stocks that have solid dividend yields, especially in the current ultra-low rate environment. In a span that covers the last 30 years prior to 2012, the Wall Street Journal notes that dividend-paying stocks have returned an average of 8.9% annually, compared to 1.8% for non-dividend paying stocks.
France Telecom (NYSE: ORAN) was one of Singer’s new picks last quarter, and now takes the 8th spot in his 13F portfolio; the stock has an astronomical dividend yield of 16.3%. In general, European telecoms have been pressured due to widespread economic weakness, with France Telecom down almost 30% year to date. Although continued difficulties are expected to remain in the interim, France Telecom’s long-term prospects can be bolstered quite heavily from international operations growth. The telecom company has managed to amass over $6 billion in cash on hand and trades at a mere 6x earnings.
Reed Elsevier (NYSE: ENL) is another new pick for Singer that made up the 10th largest holding in his firm's 13F portfolio; the stock pays a dividend that yields 4%. This professional services firm trades at 15x earnings, while the industry average is near 30x. What’s more is that Reed trades at 11x forward earnings, making it quite the value play. With recent upward EPS revisions—30% for 2013 and 40% for 2014—we see Reed as a solid investment opportunity.
Another one of Singer's new picks was Telecom Italia (NYSE: TI), which pays a dividend yield of 5.9%. Telecom has also seen appreciative pressure due to a struggling Eurozone, but strength in Telecom’s Brazilian and Argentinian operations should help prop the telecommunications company up in the interim. In the meantime, its non-European operations are expected to help drive organic revenue growth of 3% by the end of this year. Telecom trades at the low end of its industry at only 5x forward earnings.
Two REITs that were new picks for Singer were American Capital Agency (NASDAQ: AGNC) and Chimera Investment Corporation (NYSE: CIM). Both stocks sport very high dividend yields in a rate-starved environment; American Capital pays a dividend that yields 15.8% and Chimera pays a 13.1% yield. Right behind Singer in the list of American Capital fund owners was fellow billionaire Jim Simons, who added a position of two million shares last quarter (see all Simons' new picks).
American Capital trades in the mid-range of the industry at 10x earnings, but has enough cash on hand, with $2.6 billion as of 3Q, to fund its yearly dividend that amounts close to $1.7 billion. American Capital also has a relatively low beta of only 0.5 but is up 12.5% year to date compared to the Dow Jones Industrial Average’s only 7%, meaning that there’s surprisingly a lot of pop in this REIT.
Chimera trades at the low end of its industry at only 5x earnings, but we remain fairly cautious on calling the REIT a value play and believe it might be a value trap, so to speak. The company has a mere $10 million of cash on hand, while paying a yearly dividend that amounts to over $360 million. Despite this shortfall, another big fan of Chimera during 3Q was billionaire D.E. Shaw, whose firm took a new position that was nearly double that of Singer’s, at 15.6 million shares (check out all of Shaw's new stock picks).
To recap: Singer’s two European telecom companies will see continued weaknesses in their domestic operations, but have international opportunities that will help to prop up each in the interim. Reed sports a much lower dividend yield, while Singer’s two new REITs have yields that are very intriguing to investors, though it appears that American Capital is the better investment of the duo.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of France Telecom (ADR). Motley Fool newsletter services recommend France Telecom (ADR). 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!