Billionaire Ray Dalio’s Dividend Stock Picks

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In mid May, Bridgewater Associates, a large hedge fund managed by billionaire Ray Dalio, filed its 13F with the SEC. Even though the information in 13Fs is a bit behind - this most recent filing discloses many of Bridgewater’s positions in U.S. stocks as of the end of March - we’ve found that there are still a few uses for these filings.

For one, we have found that the most popular small-cap stocks among hedge funds earn an average excess return of 18 percentage points per year and think that more strategies are possible as well. In addition, we also think it’s useful to review individual filings to see what top managers are doing in the market. When going through Bridgewater’s 13F we noticed a number of high yield stocks among its top picks; here are the fund’s five largest positions in stocks with dividend yields of at least 3% (or see the full list of Dalio's stock picks).

Going for yield

Bridgewater reported a 38% increase in its holdings of Intel (NASDAQ: INTC) to a total of more than 1 million shares. Intel currently pays a dividend yield of 3.7%, as its stock price has been about flat in the last year due to concerns about how the company will handle a declining PC industry. In the first quarter of 2013, revenue fell slightly versus a year earlier contributing to a 25% decrease in net income. Billionaire Ken Fisher’s Fisher Asset Management owned a little less than 19 million shares of Intel at the end of March (find Fisher's favorite stocks).

Dalio and his team were buying Lockheed Martin (NYSE: LMT) between January and March, closing the quarter with about 220,000 shares in their portfolio. Markets are concerned that the aerospace and defense company will see a decline in business as the federal government cuts military spending, and so both the trailing and forward P/E multiples are 12. This is despite the fact that investors are generally piling into high-yield names, with Lockheed Martin offering investors a yield of 4.3%. We think that this makes it a good prospect for income investors.

The $21 billion market cap telecommunications company CenturyLink (NYSE: CTL) was another of Bridgewater’s high-yield stock picks; with quarterly dividend payments of $0.54, the current yield is higher than 6%. We would warn potential investors, however, that the dividend was recently cut to that level from $0.725 and even as it stands dividend payments seem to be higher than the company’s trailing earnings, suggesting that further cuts to the dividend are possible. CenturyLink has a somewhat low beta of 0.6, making it a potential defensive pick.

The fund initiated a position of about 610,000 shares in General Electric (NYSE: GE) during the first quarter of 2013. The company grew its earnings by 16% in its most recent quarter compared to the same period in the previous year, but revenue was actually down slightly; net income growth is not sustainable over the long term if it’s coming entirely from higher margins. The trailing and forward P/E multiples of 18 and 13, respectively, suggest that the financial community does see future earnings growth here however. GE’s dividend yield is 3.3% at current prices.

According to the 13F, Dalio cut his stake in CA (NASDAQ: CA) in half, but still had about 540,000 shares of the $13 billion market cap enterprise software company at the beginning of April. CA trades at 13 times trailing earnings, so in addition to the generous dividend yield (3.7% going by recent dividend payments) it could be considered a value play as well. The company’s fiscal year ended in March; its fiscal Q4 showed a 15% increase in net income versus a year earlier though its revenue fell by 3%.

Conclusion

We like CA’s low multiple and think it doesn’t need much if any future earnings growth to justify the current valuation. Lockheed Martin also seems like a good target for income investors, even if short-term numbers fall a bit on spending cuts. While Intel’s yield is high, we would be somewhat concerned about its recent results and so that stock might be a bit too risky at this time.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, a Motley Fool analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.


This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in CTL. The Motley Fool recommends Intel. The Motley Fool owns shares of General Electric Company, Intel, and Lockheed Martin. 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!

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