Playing Dividends Like Billionaire Stephen Mandel
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When assets under management start to stretch into the billions of dollars, scalping and short-term trading techniques become less scalable and profitable, and investors are often forced to make use of longer-term, value-driven, income-generating strategies. Just ask Stephen Mandel of Lone Pine Capital; he manages almost $17 billion dollars, and has been able to pocket about a tenth of that amount into his personal bank account. As a fundamental, company-specific investor, Mandel considers the importance of dividend-paying stocks to his overall return. We have compiled a list of some of his most fruitful dividend stocks; read on to see them below.
One of Lone Pine’s top dividend plays was Kinder Morgan (NYSE: KMI). With a dividend yield hovering around 4%, the stock provided both great returns in 2012 (up over 17%) as well as sizable quarterly income. KMI recently reported fourth quarter earnings on January 17, missing some consensus estimates but improving numbers across the board compared to the same period last year. Operating earnings, revenue, and their quarterly dividend all increased; they also projected a higher dividend target for 2013. The company operates in the energy transport and storage industry and is a favorite of Bain Capital.
Mandel searched for value under the equator in the Brazilian bank Banco Santander Brasil SA (NYSE: BSBR). BSBR is an American Depository Receipt traded on the New York Stock Exchange, meaning that it trades in US markets but represents an interest in a foreign company. The stock lost about a quarter of its value in the past year and is currently priced under $7.50; the poor share performance certainly would tarnish any of the dividends earned through their 3.5% yield. Despite this, BSBR consistently beat earnings last year and is expected to perform positively in 2013, with the current price planted at 25% away from one year mean price targets. We are apprehensive to suggest this investment, as performing due diligence on a foreign company can be full of pitfalls. Billionaire Jim Simons of Renaissance capitulated on most of his position going into the third quarter of last year, but you can see what remains here.
Another stock on Lone Pine’s list is the department store and retailer Kohl’s (NYSE: KSS). Their dividend yield of 2.8% is more than modest and augments their fairly low price-to-earnings ratio of 10. Perhaps in part due to their lukewarm performance in 2012, many sell-side analysts are fairly neutral about Kohl’s, projecting a positive upswing eventually, but with the majority recently downgrading the stock from buy and advising to hold. Billionaire Steve Cohen of SAC Capital Advisors recently loaded into his bullish call position in KSS.
Continue reading to see where else Mandel sought dividend income.
Apple (NASDAQ: AAPL) is no stranger to most hedge fund managers’ portfolios, and their explosive growth as well as their newly announced dividend in 2012 helped to prop up a number of our top funds' performance throughout this past year. The tech stock is still reeling from the blow shareholders and investors gave them in their past earnings announcement, resulting in mostly sideways trading as the market tries to decide which way to take the stock and interpret Apple’s market share position versus Samsung, Google, etc. AAPL isn’t going anywhere, but their latest stumble has many people wondering, are they still king of the tech titans?
Last on our list of Mandel’s top dividend performers is global apparel company V.F. Corporation (NYSE: VFC), which operates under household brand names such as Lee, The North Face, Wrangler, and Eastpak, among many others. The stock carries a respectable dividend yield of 2.4%, recently paying $0.87 per share to shareholders in December. With consistent earnings beats, impressive quarterly revenue and earnings growth, and favorable outlook by analysts, we are fans of VFC and anticipate future appreciation in 2013. Ric Dillon of Diamond Hill Capital is in the same boat, with over $150 million invested.
This article is written by Eric Winter and edited by Meena Krishnamsetty. Meena has a long position in AAPL. The Motley Fool recommends Apple and Kinder Morgan. The Motley Fool owns shares of Apple and Kinder Morgan. 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!