Billionaire Israel Englander’s 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.
Israel Englander founded Millennium Management in 1989 and the hedge fund has since grown to over $10 billion in assets under management. Thanks to its strong performance, Englander is a billionaire and therefore, one of the investors who we follow particularly closely in our database of quarterly 13F filings (which we also use to develop investing strategies, including our finding that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year).
When we went through Millennium’s most recent filing, we noticed a number of high yield stocks; income investors may want to use these initial ideas as a starting point for further research. Here are our thoughts on the fund’s five largest positions in stocks which currently pay dividend yields of 3% or higher (or see the full list of Englander's stock picks).
Chemical giant yielding 3%
Englander and his team nearly tripled their stake in $38 billion market cap specialty chemicals company LyondellBasell (NYSE: LYB), which currently yields 3%. As a chemicals company, LyondellBasell is tied to overall macro demand and as a result, its beta is 2.5; as we’ll see, this is in contrast to the rest of the fund’s dividend picks which tend to be more defensive in nature.
Improved margins led to a sharp rise in earnings in the first quarter of 2013 versus a year earlier. Billionaire Andreas Halvorsen’s Viking Global reported a position of 13 million shares in Lyondellbasell in its own 13F (find Halvorsen's favorite stocks).
Millennium increased the size of its position in American Electric Power (NYSE: AEP) to a total of 2.9 million shares. The $22 billion market cap company -- which acts as an electric utility, and has an integrated operation transporting coal on inland U.S. waterways -- recently increased its quarterly dividend payments to $0.49 per share. At current prices, this makes for a yield of 4.5%, which we’d say is fairly high even for a utility. American Electric Power also features a beta of only 0.3, reflecting little dependence on overall economic conditions.
The fund disclosed ownership of 1.5 million shares of NextEra Energy (NYSE: NEE), up 30% from what it had owned at the beginning of 2013. Formerly known as FPL Group (and Florida Power & Light prior to that), NextEra is an electric utility which has been moderately increasing its dividend payments in recent years; quarterly payments are currently $0.66, up from $0.50 three years ago. At current prices, the annual yield is 3.4%, and income investors might want to look into the likelihood of NextEra increasing its dividend further in the future.
According to the 13F, Englander was also buying Sempra Energy (NYSE: SRE) between January and March, closing Q1 with 1.4 million shares in his portfolio. Sempra’s dividend payments have also been increasing in the past few years, and we get a yield of 3.2% at current prices and dividend levels. We’d note that the trailing earnings multiple is 25 -- fairly high, even for a utility -- and that net income has been down according to recent reports. Investors should be aware that Sempra stores and distributes natural gas as well as provides electricity.
Xcel Energy (NYSE: XEL) rounds out our list of Millennium’s dividend stock picks. It is another electric and natural gas utility, and its beta is the lowest of any of the utilities we’ve covered here at only 0.1. Given the dividend yield of 4%, it is certainly an attractive target from an income or defensive perspective. Xcel’s earnings multiples are in the 14-15 range, so its dividend payout ratio is not particularly high even given its yield, and in its last quarter, net income grew considerably compared to Q1 2012.
LyondellBasell looks somewhat interesting, at least for investors willing to take on the high market correlation, though of course, other chemical companies might offer better values even if the yields are lower. As far as the utilities go, American Electric Power and Xcel each boast market capitalization of over $10 billion on top of their high yields and low betas, and we think that either could fit well in a dividend portfolio. NextEra might also be worth researching, as we’ve mentioned, to see if the company might increase dividends again.
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This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no position in any of the stocks mentioned. 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!