By Serkan Unal
Billionaire Louis Moore Bacon founded Moore Capital Management LLC in 1989. His firm, which manages a number of hedge funds including the Remington Investment Strategies, Moore Macro Managers, and Moore Emerging Markets, has increased its assets under management significantly since inception, to $13.5 billion currently. The firm follows a macro strategy. Its performance has been admirable, with total returns of its flagship fund averaging more than 18.3% annually since inception. However, reversing the trend of AUM growth, last year, Moore Capital returned $2 billion or 25% of its main fund to investors as the size of the fund became too large for it to achieve returns in line with the past successes.
In its latest 13F disclosure with the SEC, Moore Capital reported an equity portfolio that was particularly bullish on the financial sector plays. His largest holdings included JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), and Bank of America Corporation (BAC). During the quarter, Bacon's Moore Capital also added several new positions, including a few that pay dividends yielding above 2.0%, some of which we present below.
Linn Co, LLC (LNCO) is a unique play on the oil and natural gas MLPs. It is a holding company for Linn Energy LLC (LINE) shares, from which it collects MLP distributions and converts them into regular dividends. LNCO has a dividend yield of 7.3%. We recently wrote about opportunities and risks associated with LNCO, presenting it as one of billionaire Leon Cooperman's bullish bets in the previous quarter - read more about it here. Since the article, CNBC's "Mad Money" host Jim Cramer, who had called LNCO a perfect retirement stock earlier, recommended the stock again on March 6, 2013, referring to it as a high-growth, high-yield play. Last quarter, Moore Capital initiated a new position in LNCO worth $55.8 million.
Vale S.A. (VALE), the world's largest iron ore miner, has a dividend yield of 3.4%, payout ratio of 26%, and five-year annualized dividend growth of 25%. Lower metals prices last year caused a 23% drop in Vale's 2012 operating revenues and a 43% slump in adjusted EBITDA. Now, the company expects to grow its iron ore output by 6%-to-7% annually to reach a production target of 402 million tons by 2017. The accelerated economic growth, particularly in Asia, is likely to support iron ore prices. Vale's CEO recently said he expected less volatility in prices. The rebounding Asian demand for iron is viewed as a main driver of iron ore prices in the near term. Asia now accounts for 53% of the company's total revenues, and China alone accounts for 34%. This makes Vale a play on China's growth, which is also a reason why CNBC host Jim Cramer is a buyer of Vale. Added to this is the expected economic output growth acceleration in Brazil due to the upcoming 2014 FIFA World Cup and the 2016 Summer Olympics. Brazil alone accounts for 19.6% of Vale's total sales. Analysts generally expect Vale to grow its EPS at a long-term CAGR of 13.0%. In terms of valuation, the stock is trading on a forward P/E of 8.0x, below the iron and steel industry's multiple of 12.9x. Last quarter, Moore Capital initiated a position in Vale worth $19 million.
Annaly Capital Management, Inc. (NLY), a mortgage REIT, has a dividend/distribution yield of 11.8%. Its quarterly distributions have been trending downward, with the total 2012 cash distributions 16% below those in 2011. The company invests in mortgage-backed securities and makes cash distributions based on its current estimate of taxable earnings per common share. Over the past several years, its profits have been buoyed by low interest rates that resulted in a steepening yield curve. Now, if the rising short-term interest rates move higher without a corresponding increase in the long-term rates, a flattening yield curve could dent the mREIT's profitability. Particularly relevant for NLY is the relationship between interest rates on 2-Year Treasury notes, its borrowing rates, and 10-Year Treasury bonds, its lending rates. Given the Fed's commitment to keep interest rates low through 2014, earnings and dividends in the mREIT sector should remain under pressure on lower asset yields. In terms of valuation, NLY is trading on par with its book value, and its ROE of 11.1% is more than double the industry average ROE. Last quarter, Moore Capital initiated a new position in NLY worth $15.1 million.
Ameriprise Financial Inc. (AMP), a financial services company providing financial planning services and asset management, has a dividend yield of 2.5%, payout ratio of 27%, and five-year annualized dividend growth of 21.7%. The company recently reported fourth-quarter financial results that beat the Street on both top and bottom lines. Total operating revenues in the quarter grew 5.8% and operating EPS surged 31% above last year's levels. In 2012 as a whole, AMP's operating EPS was up 8.1%, while its total assets under management and administration grew by 7.8% year-over-year. Analysts project EPS for this year and next up by 17.2% and 16.2%, respectively. In addition to strong growth, this stock is priced attractively at 1.6x book value and 10.8x forward earnings. These compare to industry metrics of 1.7x for the price-to-book ratio and 13.9x as a forward earnings multiple. Earlier this year, given the company's shareholder-friendly capital deployment strategy, Goldman Sachs ranked AMP one of the best yielding stocks in terms of combined dividends and buybacks. Last quarter, Moore Capital initiated a new stake in AMP worth $12.2 million.
Williams Companies, Inc. (WMB) is one of the largest energy infrastructure companies in North America. It owns interests in or operates vast networks of interstate gas, NGL transportation and oil and gas gathering pipelines. Its dividend yield is 4.0% and its projected 2013 dividend coverage ratio is 1.54x. The company is expected to boost dividends at a 20% CAGR this year and next. WMB is attractive because a robust growth in shale oil and gas supplies and transportation generates substantial fee-based revenues for the company. These fee-based revenues from long-term contracts are expected to rise significantly in the future as projects worth $12 billion, including those of Williams Partners LP (WMZ), in which WMB has a 70% stake, come into service within the next three years. WMB's financial performance will also be bolstered by its recently-acquired 50% interest in Access Midstream Partners GP, LLC and a stake worth 25% of the Limited Partner units of Access Midstream Partners, LP (ACMP). In a January 2013 report cited by Barron's, Barclays said WMB's yield of 3.9% was trading at a "100 basis points discount to peers with similar dividend growth rates," which the investment bank believed would "narrow over time as fee-based revenues increased and the company's commodity exposure decreased." Last quarter, Moore Capital initiated an $11.9 million position in WMB.