Jim Simons, founder of Renaissance Technologies, is one of the most successful hedge fund managers in the world. He is the CEO of the New York-based Renaissance Technologies. Simons is known as a mathematician, and he employs mathematicians, physicists, and statisticians with no financial background. According to Forbes, with net wealth of $10.6 billion, he ranks among the top 30 billionaires in U.S.
According to Edgar Online, Renaissance Technologies LLC has $24.2 billion invested in U.S. equities. While one might think that a math-driven investment strategy invests in high-fliers, statistical analysis offers significant evidence that dividend paying stocks beat the market with lower volatility. It is not surprising to see his top stocks are also among the best dividend payers in the market.
Simon's portfolio is well-diversified. Service stocks cover approximately 23.44% of the portfolio, followed by technology [18.69%] and healthcare stocks [12.71%]. Here is a brief analysis of top dividend companies that are among the top 10 holdings of Renaissance Capital (data from finviz, and is current as of June 8 close):
Johnson & Johnson (JNJ): Founded in 1886, Johnson & Johnson has a substantial market cap of $179.54 billion as of June 7. Johnson & Johnson operates in many areas in the health care sector. The company focuses on research and development, production, and sale of numerous healthcare outputs in three fields: Consumer, Pharmaceutical, and Medical Devices and Diagnostics.
As of the June 8 close, the company was trading with a trailing P/E ratio of 14.85, and a forward P/E ratio of 12.38. With a gross margin of 69.35%, JNJ has a dividend yield of 3.48%. In the last five years, annualized EPS growth was 7.35%.This year earnings are expected to grow 8.72%. The 5-year EPS growth estimation is 6.24%.
JNJ is the largest holding in Simons' Portfolio. He owns 6.69 million shares worth $400 million. In the last quarter, he increased his holdings by 20.9%. He made this purchase at $57 - $62 range. Analysts’ mean target price for the stock is $69. I think JNJ will perform more or less in line with other healthcare stocks, but dividends will be the bonus for shareholders.
Alcon (ACL) / Novartis (NVG): As of April 8th, the merger of Alcon with Novartis was completed with approval from the shareholders. Novartis acquired Alcon. The synergy between the two companies is expected to reduce costs and offer benefits for the shareholders.
Before the merger, Novartis purchaseed 16.1 million Alcon shares in the open market. I think Jim Simons made really sweet profits from this transaction. He had been holding significant amounts of Alcon shares before the transaction was completed. Simons has $354 million invested in the Novartis AG.
Lorillard Inc. (LO): The company manufactures and sells cigarettes in the United States. Founded in 1760 Lorillard is the oldest continuously operating tobacco company in the United, and is the second largest selling cigarette brand overall in the United States based on gross units sold. In the last year, Lorillard shipped 38.1 billion cigarettes and reported net sales of $5.9 billion, net income of $1.0 billion and earnings per share of $6.78.
With a gross margin of 35.84% and operating margin of 28.88%, Lorillard is a highly profitable company. As of June 8 close, the company had a ttm P/E ratio of 13.93, and a forward P/E ratio of 11.49. In the last five years, annualized EPS growth was 10.80%. EPS is expected to increase by 9.33% in the next five years. Lorillard has a significant dividend yield of 4.57%. However, I have doubts about Lorillard's dividend yield. The company is quite profitable, but it is hard to understand the reason, as there is too much debt in the balance sheet. Something just does not feel right about Lorillard. While Jim Simons owns 1.88% of the company, he reduced his holdings by 38% in the last quarter.
Eli Lilly & Co. (LLY): Founded in 1876, Eli Lilly is based in Indianapolis, Indiana. Company has a gross margin of 81.12%, and net profit margin of 20.82%. Eli Lilly has a dividend yield of 5.12%, which is among the best dividend yields in Jim Simons’s top 10 portfolio. The company engages in the development, manufacture, and sale of the pharmaceutical products all around the world. It supplies neuroscience, endocrinology, oncology, and animal health products.
As of June 8, the company had a trailing P/E ratio of 8.47, and a forward P/E ratio of 10. In the last five years, annualized EPS growth was 20.13%. Eli Lilly’s year-to-date return was 19.46%. LLY is a highly profitable company where ROA and ROE stand at 16.56%, and 39.98% respectively. I think the analyst estimates of negative growth is too pessimistic, and the stock is one of the cheapest in the healthcare industry. Even if there is no growth the fat yield above 5% will surely beat government bonds by a large margin.
Intel Corporation (INTC): Established in 1968, Intel Corporation is based in Santa Clara, California. As of the June 8 close, Intel had a market cap of $116.96 billion. Net profit margin stands at 26.38%. The company designs, manufactures, and sells integrated circuits to industries of computing and communications all over the world. Intel also supplies microprocessor products, system on chip products, NAND flash memory products. The company is the glorious winner of microchip battle, and has almost monopoly position in its primary business.
With a dividend yield of 3.81%, the company had a trailing P/E ratio of 10.26, and a forward P/E ratio of 9.29. In the last five years, annualized EPS growth has been 7.49%, and the next 5-year EPS growth estimation is 11.13%.
The PEG ratio of 0.95 is below the 1 benchmark. Intel Corporation has almost no debt. Debt/Equity and Long-term Debt/Equity ratios stand at 0.05 and 0.04 respectively. No wonder Jim Simons increased his position by 77.5% in the last quarter. Recently, FBR Capital upgraded Intel Corporation stocks with a target price of $27. With an O-Metrix score of 7.8, I expect Intel to beat the market with a large margin in the next 5 years.
Coca Cola (KO), a long time Warren Buffett favorite, is also favored by Jim Simons. He owns 3.45 million shares worth $225.5 million as of June 8th. Renaissance Capital increased Coca-Cola holdings by 53.97% in the last quarter. Coca-Cola, founded in 1886 and headquartered in Atlanta is the world's largest manufacturer, distributer, and marketer of nonalcoholic beverage concentrates and syrups worldwide. The company's sparkling beverages include nonalcoholic beverages with carbonation, such as energy drinks, carbonated waters and flavored waters.
As of the June 8 close, shares were trading at a P/E ratio of 12.61, with a forward P/E ratio of 15.23. Coca-Cola's dividend yield is 2.88%. While I do not expect huge performance, the shares are trading below their historical P/E ratio range. With an above average T-Metrix score, I think Coca-Cola is a nifty dividend pick for the next 5 years.
Disclosure: I am long INTC.