Dividends are the distributions of a company’s profits to its shareholders, both common and preferred, every quarter as deemed by the board of directors. These dividends can help improve the returns of a portfolio even if the price of the stock does not move too much.
The dividend is useful in growing a portfolio because the cash dividend can be reinvested into the same stock or a different stock altogether. John Paulson’s portfolio is full of companies that give out high dividends consistently. These stocks helped him become one of the most successful hedge fund managers in the country. Here are some high dividend stocks that Paulson is heavily invested in.
JP Morgan Chase Co. (JPM)
This company is one of the leaders in the banking industry and has one of the largest capitalizations in the market with $146.5 billion, more than its closest counterpart Wells Fargo Company (WFC) which has $137.8 billion and Citigroup Inc., (C) which has $90.6 billion. It also has a healthy balance sheet with $182.8 billion in Equity. Citigroup’s equity is much smaller at only $178 billion while Wells Fargo had equity of $136.4 billion. With this in mind, JPM is a clear choice among the rest of these stocks and the dividend statistics only add to the case.
JP Morgan Chase released a dividend of $0.25 per share as of June 30, 2011 for a payout ratio of 9.00%. JP Morgan Chase also has a trailing annual dividend rate of 0.60 and a forward annual dividend rate of 1.00 for a yield of 2.7% and 1.6% respectively. JPM outperformed its peers compare to WFC who has a forward dividend rate $0.48 for a forward annual dividend yield of 1.90% and a trailing annual dividend rate of 0.34 for a trailing annual dividend yield of 1.30%. Citigroup was even lower compared to both companies with a forward annual dividend rate of 0.04 and a yield of 0.10% and a trailing dividend annual rate of 0.08 for a yield of 10% as well.
Whirlpool Corporation (WHR)
Whirlpool is another company that provides a high dividend rate yield with a forward dividend yield of 3.20% forward annual rate of $2.00 on dividend date of September 14, 2011. WHR is a strong stock that offers high dividends compared to most of its competitors in the same industry like Wuxi Little Swan Company and Indesit Company SpA (IDTCF.PK). Wuxi little swan will only release 1 RMB or $0.15 for every 10 shares while Indesit Corporation released 0.3 euros per share in 2010 or an equivalent of $0.42 dollars per share.
The strong dividend that it provides makes Whirlpool a good stock to buy. Whirlpool is a leader in its industry with one of the largest capitalizations in the market with $4.64 billion in outstanding shares compared to Wuxi Little Swan which has only 358.5 million and Indesit Corporation with 57.35 million. Furthermore, Whirlpool is stronger than the other companies with positive earnings in the first quarter for the past three years. Its strong earnings should help the company through any possible rough times just in case a recession dampens consumer spending.
Ashford Hospital Trust Inc. (AHT)
This company is a high dividend stock with a forward dividend yield of 4.90% with a recent release of dividend on July 14, 2011. You can compare its dividend yield to its closest competitors, MHI Hospital Corporation (MDH) and Vornado Realty Investment Trust (VNO) who only had an annual forward dividend of 3.80% and 3.20% respectively.
Ashford Hospital has a healthy balance sheet with positive equity with $3.62 billion in assets while MHI Hospitals have $212 million in assets backing the company. This could be a particularly good time to buy into AHT because of a recent report from Harvard University stating that with the coming recession, the budget cuts may come from costly treatments that do not offer lifesaving treatment.
Its strong year over year revenue growth of 4.30% will help ensure that it stays afloat in difficult time while providing consistent income from dividends to offset the slowing down of prices.
Medtronic, Inc. (MDT)
Another high dividend stock Paulson holds is Medtronic with a forward annual dividend rate of $0.97 and a forward annual dividend yield of 2.80%. However, compared to St. Jude Medical Inc. (STJ) with a forward annual dividend rate of 1.39 and yield of 5.70%, Medtronic is outperformed in this aspect of the stock. However, we also need to take into consideration that MDT has continuously increased its dividend at rate of 100% every four years while St. Jude does not have sufficient dividend history since the company only released a dividend this year and the last dividend they released before that was back in 1994.
St. Jude Medical however has a lower market capitalization of $14.86 billion compared to Medtronic’s $36.96 billion capitalization. However, STJ outperforms Medtronic in one key aspect and it is in its cash flow. STJ has enjoyed continuously positive cash flow 3 of the last 4 years and $107.41 million in 52 weeks since January 2011 while MDT had a negative cash flow of $18 million in the 52 weeks from April 2011. Considering all of this information, I believe that it may not be wise to add MDT on to your portfolio, especially with more stable stocks like STJ available at roughly the same price.
BlackRock Inc. (BLK)
BlackRock was recently in the news as it seeks to get approval from regulators to offer actively managed ETFs to compete with stock picking mutual funds. This will help BLK to make the most of the $2.01 trillion market that consist the passive products that include exchange traded funds and mutual funds. This move paired with the possible returns from dividends make BlackRock an attractive stock.
Black Rock has a forward annual dividend rate of $5.5 and forward dividend annual yield of 3.3%. Compare that to Goldman Sachs (GS) and Blackstone Group (BX) which has a forward annual dividend yield of 1.20% and 2.90% respectively.
However, the negative cash flow of $1.34 billion from the 12 months ending December 31, 2010 is a cause for concern, especially since Goldman Sachs only has a negative cash flow of -$363.48 million and Blackstone has a positive cash flow of $1.5 billion. Because of this, I would not recommend buying this stock even with the better than expected dividends.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.