By Serkan Unal
Billionaire David Harding founded Winton Capital in 1997. Today, the firm manages some $29 billion and is the world's largest managed futures firm. The firm follows a similar investment model as Jim Simons' Renaissance Technologies, applying a "research-led," quantitative approach, using a systematic trading program to execute long or short positions in futures and equity markets. According to the firm, "the company pursues a diversified trading strategy which does not rely on favorable conditions in any particular market or on general appreciation of asset values." Winton Capital's portfolio is well diversified and balanced, with broadly balanced weights in different sectors.
Based on its latest 13F disclosure, Winton Capital reported large stakes in a number of high-quality high-yielding positions, including several S&P Dividend Aristocrats. We took a closer look at Harding's latest picks and spotted a few dividend-paying positions yielding about 2.0% which Harding more than doubled last quarter. The following five stocks represent solid, traditional dividend growth plays with either growth or value characteristics.
Kimberly-Clark Corporation (KMB), a consumer goods giant, has a dividend yield of 3.4%, payout ratio of 58%, and five-year annualized dividend growth of 7.4%. The company recently raised its dividend by an above-average 9.5%, marking its 41st consecutive year of dividend increases. The stock is one of the S&P Dividend Aristocrats. The company has experienced robust revenue and EPS growth. Last quarter, the company reported a 5% year-over-year growth in organic revenues, driven by a robust sales expansion in emerging markets. Especially robust has been volume growth in emerging markets. For example, in 2012, diaper volumes were up 45% in China, 20% in Russia, and 15% in Brazil. Robust emerging market growth suggests the share of international sales in KMB's total revenues has more room to grow from the current 37%. For 2013, the company targets organic sales growth of 3%-to-5% and adjusted EPS growth of 5%-to-8%. Analysts forecast KMB's long-term EPS CAGR at 10.2%. Solid revenue growth has been boosting KMB's cash from operations, which hit a new record last quarter, more than doubling from 2011. In terms of valuation, the stock is trading at 16.9x forward earnings, below industry's 19.7x. Last quarter, Winton Capital hiked its KMB share ownership by 100.4% to 412,080 shares.
Wisconsin Energy Corp. (WEC), a diversified electric and natural gas utility, has a dividend yield of 3.3%, payout ratio of 56%, and five-year annualized dividend growth of 19.5%. The utility's 5-year average dividend growth is nearly eight times higher than that of its peer group. The company promises to return increasing shares of earnings and free cash flow to shareholders in the future, with its dividend payout ratio targeted at 60% in 2014 and at 65%-70% by 2017. This implies a 7%-to-10% CAGR in dividends. Aside from dividends, the company plans to spend $300 million on share buybacks in 2013 alone. Last year, WEC posted financial results that beat analyst estimates on both top and bottom lines, despite a dip in revenues and a jump in the EPS. Revenues were weaker due to a drop in power demand by large commercial and industrial customers, while EPS was bolstered by lower operational costs. The utility company projects EPS growth between 4% and 6% annually, while analysts see its long-term EPS CAGR at 5.4%. In terms of valuation, the stock is trading at 16.8x forward earnings, on par with its industry's forward multiple. However, its price-to-book is higher than the industry average ratio. Last quarter, Winton Capital boosted its share ownership in WEC by 101% to 835,372 shares.
McCormick & Company (MKC), the world's biggest spice company, has a dividend yield of 1.9%, payout ratio of 42%, and five-year annualized dividend growth of 8.9%. Boasting 26 years of positive dividend growth, MKC is an S&P Dividend Aristocrat. The company has strong brand recognition and recession-resilient earnings. In recent years, it has been growing through accretive overseas acquisitions, with particular focus on emerging markets, and most notably on China, where sales rose 23% last year. While MKC's international sales account for only 14% of MKC's total sales, they increased by 40% last year alone and doubled since 2007. In 2012, the company grew its total revenues by 8.6% and diluted EPS by 9.0% year-over-year. Positive volume and pricing trends helped prop up revenues and earnings, despite higher input costs. This year, growth will be more moderate, as suggested by the company's 2013 guidance. Analysts see MKC's long-term EPS CAGR at 8.3%. While its growth is appealing, the company is pricey at 21.9x forward earnings. Its price-to-book of 5.5 is much higher than the industry average and the company's own five-year average ratio. Last quarter, Winton Capital hiked his MKC shares ownership by 140% to 470,243 shares.
Cincinnati Financial Corp. (CINF), a provider of property and casualty insurance, has a dividend yield of 3.6%, payout ratio of 85%, and five-year annualized dividend growth of 27.2%. The company is an S&P Dividend Aristocrat with 52 consecutive years of dividend increases. The company recently posted spectacular fourth-quarter earnings that substantially exceeded analyst estimates, based on especially robust underwriting results. Total revenues in 2012 were 8% higher than a year ago, driven by higher net earned premiums that increased 10% year-over-year. The full-year 2012 operating income per share was 230% higher than a year ago. The company, which has a debt-to-equity of 15%, is a good value proposition, "targeting annual rate of growth in book value plus the rate of dividend contribution to average 10% to 13% from 2013 through 2017," according to its Investor Handout. CINF currently trades at a 40% premium to its own book value and a 27% premium to its peer group based on the price-to-book ratio. The premium is attributed to CINF's generous and rock-solid dividend payout. The insurer's ROE is 8.0% versus 8.4% for its industry. Last quarter, Winton Capital reported owning 619,332 CINF shares, a 235% increase from the quarter before. CINF was also popular with value-oriented First Eagle Investment Management (check out its top picks).
The Coca-Cola Company (KO), the global soft beverages giant, has a dividend yield of 2.9%, payout ratio of 52%, and five-year annualized dividend growth of 8.1%. The company is an S&P Dividend Aristocrat with 51 years of consecutive dividend increases. KO is one of the top holdings in Warren Buffett's portfolio. Last quarter, a number of hedge fund managers were particularly bullish about the company. Michael Larson, which manages Bill and Melinda Gates Foundation Trust, hiked the Trust's position in KO by 46%, while Donald Yacktman, a renowned billionaire investor, increased his KO stake by 23% (see Yacktman's top stock pick). We recently wrote about KO as one of the bullish bets by billionaire Richard Chilton. The stock is attractive on both revenue and EPS growth, with the CAGR rates well exceeding the rate of global economic expansion. Moreover, the company has robust growth in cash from operations, which supports future dividend increases. Last quarter, Winton Capital reported owning 554,336 KO shares, a 122% increase compared to the quarter earlier.