By Matt Doiron
Jim Simons has become a multi-billionaire as a result of the success of the hedge fund he founded, Renaissance Technologies, which has delivered strong returns even as it has increased in size- allowing the fund to charge above-market fees to outside investors. Renaissance recently filed its 13F for the first quarter of 2013, disclosing many of its long equity positions as of the end of March; we track 13Fs from hundreds of hedge funds and use the included information for a number of purposes, including developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). We can also look at individual funds' top picks in a number of areas, including high yield stocks. Read on for our thoughts on Renaissance's five largest holdings paying dividend yields of at least 3.5%, see the full filing on the SEC's website, and compare these picks to previous filings.
The fund's top pick, Eli Lilly (LLY) actually satisfies this condition with a yield of 3.5% going by current prices and recent dividend payments; Renaissance owned about 11 million shares at the end of March. The drug manufacturer is also a good example of a defensive stock, with its beta of 0.4 indicating little dependence on the broader economy. Eli Lilly's stock price does look like it has been bid up a bit, at least in terms of expected 2014 earnings, with the stock's forward P/E multiple being 20.
One classic example of an industry paying high yields is cigarettes, and Renaissance also included Philip Morris (PM) among its ten largest holdings by market value. The yield here is 3.6%, which is actually lower than what can be found at some peers, though the company's focus on international operations following the split of the old Philip Morris company theoretically gives it more growth opportunities. That hasn't been the case recently, however, with revenue and earnings being essentially flat last quarter compared to the first quarter of 2012. Philip Morris trades at 18 times its trailing earnings.
The investment team cut the stake in Intel (INTC) between January and March but still owned close to 17 million shares according to the 13F. In its most recent quarter, Intel's revenue slipped by 3% compared to the same period in the previous fiscal year with net income falling by over 20%. The market has reacted by sending the stock price down over the last year (as the S&P 500 has surged over 25%) but with Intel continuing to pay a solid dividend (payments have actually increased over the last several years) at this point the yield is 3.7%. Billionaire Ken Fisher has a large position in INTC (see Fisher's top stock picks).
In addition to Philip Morris, Renaissance also likes Lorillard (LO), increasing its stake in that cigarette company by 17% during 2013. Lorillard actually looks like an all-around attractive stock: its dividend yield is quite high, even considering its industry at 5% and there is something of a value case as well with a trailing P/E of 14. In addition, revenue grew by 6% in the first quarter of 2013 versus a year earlier (earnings growth was much higher, though we'd think that it would be difficult to continue to increase net margins over the next several years).
AstraZeneca (AZN) rounds out our list of Renaissance's dividend picks. The company is another possible value play - the market capitalization of $67 billion represents earnings multiples in the 10-12 range - but business has been down and so investors should look into the reasons for that before considering AstraZeneca on that basis. The company is currently making dividend payments at a rate of $2.80 per year (two payments each year, with one significantly larger than the other), which at current prices comes out to a yield of 5.3%. While we'd still be concerned about the business's health, that is indeed a high yield.