By Aubrey Tabuga
Soros Fund Management is an American hedge fund management firm founded by George Soros. Soros is considered one of the most successful hedge fund managers ever. He has led his company to achieve an impressive record of 20% annual return in four decades. George Soros largely invests in equities. As of the end of September 2012, Soros had $9.264 billion of assets under its management. Recently, the billionaire and philanthropist has been very vocal about the euro crisis to the extent that the famous manager even expressed his willingness to help Greece out.
I looked into the dividend stocks favored by Soros in the latest quarter. These are Target Corporation (NYSE:TGT), Wal-Mart Stores, Inc. (NYSE:WMT), Walgreen Co. (WAG), Johnson & Johnson (NYSE:JNJ), and General Electric (NYSE:GE). I analyzed each from a fundamental perspective, focusing more on its growth prospects and record in dividends payment. Investors seeking for solid dividend income may want check these top dividend stocks of Soros.
% of Portfolio
Wal-Mart Stores, Inc.
Johnson & Johnson
Sources: whalewisdom.com & finviz.com
Annualized Dividend Amount
Wal-Mart Stores, Inc.
Johnson & Johnson
Source: nasdaq.com; p-may be partial for the year
Target Corporation is a company based in Minneapolis, Minnesota, that operates general merchandise stores in the U.S. The company has recently been reiterated by TheStreet Ratings as a buy with an A- score. Target is teaming up with Neiman Marcus in a collaboration that involves 24 designers who are producing items that will be made available soon in the stores and websites. Target is also starting to expand its market. It will be opening its first stores in Canada next year.
Soros renewed its stake in the company in the latest quarter. The shares amounted to 1.140 million or 0.78% of the hedge fund's total portfolio. This is by far the largest position that Soros has had in Target Corp. The last instance that the company appeared in the 13F Filing of Soros was in the third quarter of the previous year.
The stock had gained 23.81% from last year. It enjoys a robust growth in earnings and continues to do so with an estimate of 12.40% per year in the long term. Target Corp. has a high dividend yield of 2.32%. It continues to exhibit an impressive trend in dividend payment. The annualized dividend amount has been increasing at an average rate of 18%. On the other hand, its ability to raise dividends may have weakened as shown by an increased payout ratio of 27.62% from a historical level of 21.46%.
Wal-Mart Stores, Inc. is a giant retail stores operator. The company had just announced its ex-dividend date of December 5, 2012; it will pay a cash dividend in the amount of $0.3975 per share on December 27. Soros reduced its shares in the retail company by about half in the third quarter. It is noted that the fund manager bought a huge stake in the previous quarter making Wal-Mart its top stock with a share of 4.87%. As of the end of September, the holding comprised 1.98% of Soros' total holdings.
Wal-Mart stock had grown by 22.97% from the previous year. The company's strength lies in its robust growth performance. Investors can look forward to an earnings growth rate of 9.40% annually in the next five years. The company's dividend yield is 2.20%. It has an impressive track record in paying dividends to its investors for many years already. The payout ratio of WMT has slightly risen to 31.79% from 28.91%. This indicates a relatively weaker capacity to raise dividend earnings.
Walgreen Co. is an operator of a network of drugstores in the U.S. The Deerfield, Illinois-based company had been on the losing end lately due to a squabble over contract terms with Express Scripts. Its total sales have decreased by 2.1 percent in October; this was partly a result of the hurricane Sandy.
The hedge fund bought 3.630 million new shares of Walgreen in the latest quarter. If the past trend holds, Soros will likely sell the entire stake in the fourth quarter. The fund manager has a tendency to buy and then sell all at once in the subsequent quarter.
Walgreen stock had gained 6.73% from last year. Despite a decline in the EPS this year, earnings are expected to grow by 8.98% next year. In fact, in the long term, the EPS is estimated to grow annually by an average of 12.74%. The company's yield is at 3.21%. Walgreen maintains an impressive record of increasing annualized dividends. On the other hand, the payout ratio went up to 39.65% from a lower ratio of 26.74%. This suggests a weaker ability to produce dividends in the future.
Johnson & Johnson
Johnson & Johnson is a global healthcare products company based in New Brunswick, New Jersey. Recently, the company had obtained support from a federal advisory panel for its anti-tuberculosis drug called bedaquiline. Meanwhile, J&J announced that Chairman William Weldon will end his 41-year career with the company on December 28. From that day, the new Chief Executive Officer Alex Gorsky will assume the additional role as chairman.
Soros bought a huge amount of new shares in JNJ in the latest quarter. The hedge fund had increased its holding in J&J by 1557%. By the end of September, the stake comprised 1.91% of Soros' total portfolio.
So far, the stock had gained 10.47% from the previous year, and it continues to surge through the current quarter. EPS has contracted this year by 27.11%, but is expected to inch forward next year. In the long term, earnings per share are estimated to grow by 6.41% annually. The company's strength lies in its profitability; it currently has a net margin of 12.39%. JNJ's yield is at 3.49%. Hedge funds like Soros favor JNJ because it has an outstanding record of paying dividends for years. Nevertheless, the company's ability to raise dividends as shown by the payout ratio may be weakening. From a historical ratio of 46.72%, the payout significantly rose up to 76.21%.
General Electric Company is a global technological leader whose legacy of innovation had made significant contributions to the modern world. The Fairfield, Connecticut-based company had recently signed an agreement with several partners for a joint venture to produce diesel engines in Kazakhstan. In this joint venture, a 97,000-square foot diesel engine facility will be built in Astana, Kazakhstan. Meanwhile, GE had also signed a deal that is worth $394 million for creating wind turbines in Brazil.
The hedge fund has been buying additional shares of GE in the last two quarters. It increased its stake by 585% in the previous quarter, and then bought an additional 21% in the third quarter, bringing the total share to 2.56% of Soros' total portfolio.
GE stock had gained 19.40%. The company attracts investments with its profitability and encouraging growth performance. The profit margin is 9.90%. Also, investors can expect earnings per share to grow by 11.05% each year in the next five years. Its dividend yield is a high 3.26%. GE continues to pay stable and increasing dividends to investors. This is likely to be sustained as shown by its ability to produce dividends. The payout ratio went down to 50.27% from a historical level of 55.59%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Aubrey Tabuga, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.