Billionaire Jeffrey Vinik’s Top 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.
Dividends are a key part of returns, and we have found five dividend-paying stocks that billionaire Jeffrey Vinik loves. In the mid-nineties, Vinik ran Fidelity’s Magellan Fund, returning 17% annually. Vinik left Fidelity to start Vinik Asset Management shortly thereafter, and following a few years of stellar returns, Vinik returned capital to investors in 2000. He now primarily manages just the assets of close friends and family (check out Jeffrey Vinik’s newest stock picks).
International Paper Company (NYSE: IP) is a global paper company that pays a dividend yielding 3.3%. Although it trades near the high end of the paper industry at 19x earnings, its forward P/E of 11x makes the company very attractive from a valuation standpoint. After a 500% share ownership increase, International Paper is now the 12th largest 13F holding for Vinik. Compared to other top paper company Domtar, International trades well above its peer’s 13x P/E, but International Paper's dividend yield is more than one full percentage point higher than Domtar's. Steven Cohen, another hedge fund billionaire, was bullish on International Paper in 3Q, increasing his stake over 200% (see Steven Cohen’s newest picks here).
Cameco (NYSE: CCJ) is a new pick that now sits at Vinik’s 10th largest 13F holding. The company is a developer, producer and seller of uranium for use in nuclear reactors. Cameco trades at 15x trailing earnings and only 13x forward earnings, making it an interesting play in the mining industry. The uranium company also pays a 2.2% dividend yield. Cameco expects an improvement in the average realized uranium price due to the advantageous mix of its contracts, which should help counter an industry-wide slowing in nuclear reactor construction. Sell-side analysts expect Cameco to grow its earnings at a 10% CAGR over the next half-decade.
SK Telecom (NYSE: SKM) is a Korean wireless telecom provider that pays a robust dividend yield of 5.8%. SK was also a new pick for Vinik in 3Q, and is the 24th largest holding in Vinik’s 13F portfolio. SK trades the cheapest amongst its telecom peers at 13x trailing earnings and trades at only 8x forward earnings. After 2% revenue growth in 2011, SK is forecasted to increase revenues by 2.2% this year, and a whopping 4.9% in 2013. This top line expansion will be driven by continued growth of Long Term Evolution (LTE) subscribers, with SK having 6 million LTE customers at the end of October. The company expects to break the 7 million-mark by the end of this year. Beyond its Korean operations, SK has plans to diversify with investments in Greater Asia and North America.
Packaging Corp of America (NYSE: PKG) is a producer of containerboard and corrugated products. Vinik made an almost 300% share increase in the stock last quarter, to put Packaging Corp as the 29th largest position in his 13F portfolio. An ongoing economic recovery should help boost demand for corrugated packaging and drive high single-digit revenue growth over the next two years. Growth of 7.5% is expected by the end of 2012, followed by growth of 7.2% next year. Although Packaging Corp trades near the high end of the container packaging industry at 25x earnings, its forward P/E of 13x makes it a solid value investment, not to mention the food safety company's 2.7% dividend yield.
Foot Locker (NYSE: FL) is one of the largest shoe retailers in the U.S., and pays a 2% dividend yield. After a 200% share increase last quarter, Foot Locker now holds the 18th spot in Vinik’s 3Q 13F. The shoe company trades in line with its major peers at 15x earnings and has solid growth prospects that are expected to drive five-year EPS by 12% annually. Ken Griffin, the founder of Citadel Investment Group, was the top fund owner of Foot Locker in 3Q (check out Ken Griffin’s newest picks).
To recap: Cameco looks like a unique investment in a niche industry, and International Paper is a solid dividend payer, having paid a dividend since 1987. Foot Locker is executing on a solid turnaround strategy to close unproductive stores and grow internationally and SK can take advantage of the growing demand for telecommunications and wireless mobile devices. Packaging Corp is yet another niche market play, and offers investors growth opportunities in addition to its income capabilities. On the whole, Jeffrey Vinik has proven that his stock picking strategy is great at discovering some of the market’s truly hidden dividend gems.
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 has no positions in the stocks mentioned above. 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!