By Marshall Hargrave
From trading stock options in his Harvard dorm room to crafting a merger-arbitrage fund into one of the largest hedge funds to date, Ken Griffin has amassed quite the resume. The multi-billionaire founded Citadel Investment Group in 1990 and now manages over $6 billion in assets. Astoundingly, Griffin employs fifteen different strategies, with a focus on quantitative methods.
Per Citadel's 3Q 13F we have identified five high dividend-paying stocks that Griffin owned at the end of 3Q. Dividends play a big role in total stock market returns, hence the reason we follow dividend-paying stocks. We also have a special appreciation for those stocks that have solid dividend yields in the current ultra-low rate environment. In a span that covers the last 30 years prior to 2012, the Wall Street Journal notes that dividend-paying stocks have returned an average of 8.9% annually, compared with 1.8% for non-dividend paying stocks.
Boston Properties, Inc. (BXP) was the first dividend-paying stock that caught our eye. Boston is a self managed REIT and was a 50% increase in shares for Griffin during 3Q. Boston pays a 2.5% dividend yield and expects to grow funds from operations per share from $4.93 in 2012 to $5.15 in 2013. Interim growth should come from new acquisitions of properties and strong occupancy rates - estimated to be 93% in 4Q compared with 91.6% in 3Q. Boston trades around 20x FFO, which is above its peers, but the REIT's long-term growth prospects warrant the premium, especially given its focus on urban areas that have high barriers to entry.
Tyco International Ltd. (TYC) was a 38% increase in shares for Citadel and pays a 2.1% dividend yield. The security and alarm company trades at 28x earnings, near the top end of the industry, but at 14x forward earnings Tyco is a solid buy. After completing the split of its business earlier this year, Tyco should be able to see solid growth, with revenue expected to grow by 4% in 2013 compared with 2% in 2012. Tyco's 22% expected earnings CAGR should be driven by the commercial fire and security segment, a result of a rebounding macro-economy. Tyco is also one of the top 10 service stocks loved by hedge funds (check out our full Top 10 here).
Citadel increased its Time Warner Inc. (TWX) stake by over 80% in 3Q. Time Warner trades at 18x earnings, in line with peers, but its forward P/E of 13x is well below average and puts the media company as a solid value play. Time Warner pays a 2.2% dividend yield and saw 3Q EPS come in at $0.86 versus $0.79 for the same quarter last year.
ConAgra Foods, Inc. (CAG) remained a stable position for Citadel, with the investment firm owning 6.5 million shares at the end of 3Q. It pays a solid 3.3% dividend yield and recently announced the acquisition of other notable food company Ralcorp. 2013 sales are expected to be up 7% thanks to the recent acquisition, where Ralcorp has made moves toward higher margin private labels. ConAgra is one of the top 10 food stocks loved by hedge funds in 3Q (see the full list here).
General Electric Company (GE) was a huge increase to Citadel's portfolio during 3Q, with Griffin increasing his fund's stake by over 3,500%. GE pays a dividend yield of 3.2% and is expected to see 2013 revenue up 4%, driven by growth in energy and technology, with GE Capital also expected to see sales increases. GE trades above some of its conglomerate peers at 17x earnings, but we believe that investors are underappreciating its growth in gas turbine and jet sales. EPS is expected to grow at an 11% five-year CAGR, and GE currently only trades at 12.5x forward earnings. Billionaire George Soros is also a big fan of General Electronic (check out George Soros' newest stock picks).
To recap: Boston Properties is a top REIT with various expansion efforts that should give it reason to boost its dividend over the interim. We believe that Tyco will see growth from international expansion and is a solid pick. Time Warner is quite the value play, with ConAgra being quite the growth at a reasonable price opportunity thanks to the Ralcorp acquisition. GE is an industry giant that has made initiatives to continue growing despite its massive size.