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By Aubrey Tabuga

David Einhorn's Greenlight Capital is an American hedge fund with around $6 billion worth of assets under management. Einhorn became famous for short-selling the Lehman stock prior to the latter's collapse in 2008. He is one fund manager who had benefited from strategic shorting when the market is struggling. Einhorn is popular for successfully turning his initial investment of $900,000 to a $6 billion hedge fund in a span of 12 years.

In this article I investigate the dividend stocks that this popular hedge fund favors. These are Seagate Technology Public Limited Company (STX), Microsoft (MSFT), Computer Sciences Corporation (CSC), Ensco plc (ESV), and Einstein Noah Restaurant (BAGL). I analyze them from a fundamental perspective, focusing on the yield, stability of dividends, and growth prospects, to see whether they are worth buying or not.

Stock

Shares Held

Market Value

% of Portfolio

% Change

Yield

Performance (YTD)

Seagate Technology

16,588,140

$513,568,799

8.56%

-28%

5.99%

60.71%

Microsoft

7,662,895

$228,047,757

3.80%

0%

3.48%

4.67%

Computer Sciences Corp.

6,866,250

$221,161,906

3.69%

89%

2.04%

69.19%

Ensco plc

3,795,665

$207,091,488

3.45%

0%

2.57%

27.16%

Einstein Noah Restaurant

10,733,469

$189,875,072

3.16%

0%

3.11%

4.89%

Sources: whalewisdom.com & finviz.com

Annualized Dividend Amount

Seagate Technology

Microsoft

Computer Sciences Corp.

Ensco plc

Einstein Noah Restaurant

2012p

0.40

0.83

0.60

1.50

0.50

2011

0.28

0.68

0.80

1.40

0.50

2010

-

0.55

0.50

1.075

-

2009

0.08

0.52

-

0.10

-

2008

0.32

0.46

-

0.10

-

2007

0.24

0.41

-

0.10

-

2006

0.17

0.37

-

0.10

-

Source: nasdaq.com; p - may be partial

Seagate Technology

Seagate Technology is a company that develops hard disk drives for enterprise storage and client compute and non-compute market applications. Recently, the company reported that the President, CEO and Chairman, Steve Luczo has been named one of the top business persons of the 2012 by Fortune Magazine. The hedge fund decreased its position in Seagate Technology by 28% in the latest quarter, bringing the share to the total portfolio to 8.56%. Nonetheless, the stock is still Greenlight's top 2. It is noted that the hedge fund significantly increased its stake during the previous quarter.

With a yield of nearly 6%, the stock is highly favored by Einhorn. The company has continuously increased its dividend payment in the last 2 years. Although its payout ratio has increased from 9.18% to 12.55%, which signifies a relatively weakened ability to raise dividends, the difference was quite negligible. The stock had gained a huge 60.71% from the previous year. The company's strength is its encouraging growth performance and prospects. EPS grew massively by 493.10% this year. Investors can expect an annual growth in earnings of 12.50% in the long term. Moreover, the company attracts investors' attention with its high net margin of 20.83%.

Microsoft Corporation

Microsoft Corporation is a leading developer of software products and services. The famous creator of Windows also develops and sells hardware around the world. The company had made a number of important product launches this year including Windows 8 and its Surface tablet. Recently, it announced that it will provide updates to its core Microsoft Dynamics business solutions come December. This will deliver new capabilities and value to its client's businesses.

Microsoft is one of Greenlight's most favored stocks, having maintained the stock among its top 10 stocks for at least the last 9 quarters. During the previous two-year period, the hedge fund had sold a portion of its holding only once - during the first quarter of 2012.

With its yield of 3.48%, Microsoft is a powerful dividend income generator. The company has an outstanding record of paying increasing dividends continuously through the years. Recently, one can observe a weakened capacity of Microsoft in raising dividends as its payout ratio increased from 28.52% to 44.4.0%. Nonetheless, with an impressive net margin of 21.71% and good growth prospect for the coming years, Microsoft is likely to stay in the favoured list of hedge fund like Greenlight Capital.

Computer Sciences Corp.

Computer Sciences Corporation is an IT and professional services provider that caters to governments and commercial enterprises. The company, which also provides financial services and consumer credit information to various industries, is set to sell its credit services unit to Equifax Inc. for $1 billion in cash. This was part of the company's initiative to rebalance the firm. Greenlight increased its position in Computer Sciences by 89% in the third quarter. This is the second time that it bought additional shares since it initiated the position in the first quarter of the current year. As of last quarter, the stock comprised 3.69% of Greenlight's total portfolio.

The stock had gained an impressive 69.19% from last year. Despite a current loss, it will see a positive EPS next year. Its earnings are also estimated to grow by 8.75% each year for the next 5 years. With a yield of 2.04%, CSC is one of the top dividend stocks of Einhorn. The dividend amount has been stable for the last 10 payments. However, to sustain this, the company needs to initiate or fast-track programs that can achieve profits. Currently, the profit margin of CSC is a negative 8.71% based on data from finviz.com.

Ensco plc

Ensco plc is a London-based company that provides offshore contract drilling services to the oil and gas industry worldwide. The company had announced its next ex-dividend date of December 6, 2012 with a cash payment of $0.375 per share to be paid on December 21. Greenlight maintained its position in Ensco plc in the third quarter. This comprised 3.45% of its total portfolio. It is noted that Greenlight had cut its shares in the last 2 quarters. Ensco had been in the 13F Filing of Greenlight in at least the last 9 quarters.

The stock had gained 27.16% from the previous year. Its strength is in its bright growth prospects. Investors can expect earnings to leap by 27.60% each year for the next 5 years. It enjoys a remarkable net margin of 28.08%. The company has a high yield of 2.57% and an impressive record in paying dividends to investors for over a decade already. However, its payout ratio has declined from 15.28% to 29.33% suggesting a relatively weaker ability to raise dividends than before. Meanwhile, the forward P/E ratio is 8.19, slightly lower than the current one at 11.47.

Einstein Noah Restaurant

Einstein Noah Restaurant Group, Inc. is a company based in Lakewood, Colorado that owns and operates bagel specialty restaurants in the US. In the third quarter report of the company, it has met earnings per share estimates, but missed the consensus estimate for its revenue. Adjusted earnings were at 21 cents per share while revenues reached $105.5 million, which is 1.9% higher than that for the previous year.

Einstein Noah Restaurant's is one of Greenlight's most favored stocks. The hedge fund had held on to its stake in the company for at least the last nine quarters, not selling a single share. The stake amounts to over 10.733 million which is equivalent to 3.16% of Greenlight's total portfolio.

The stock had gained only 4.89% from last year. However, like in the other picks of Einhorn, Einstein Noah Restaurant has a notable long term annual growth estimate of 16.50%. Its dividend yield is 3.11%, and the company has been paying stable dividends in the last two years. The company's forward P/E is 14.37, lower than the current ratio of 17.49%. However, the payout ratio for Einstein Noah has deteriorated to 53.85% from a historical 13.10%.

Source: Top Dividend Stocks Favored By David Einhorn