Ray Dalio founded Bridgewater Associates, a "global macro firm" in 1975. The investment firm serves a wide range of institutional clients and even manages money for central banks and foreign governments. It currently has $122 billion in assets under management.
Bridgewater Associates applies a global macro investing approach. It relies on qualitative and quantitative methods to spot new investments opportunities. The hedge fund's objective is to build portfolios with statistically uncorrelated investment returns based on risk allocations. The company was a pioneer of investment strategy that differentiates alpha and beta investments. Beta investments are passively managed and carry a standard level of market risk, while alpha investments are actively managed and generate higher returns that are not correlated with those of the broad market.
Dalio's investment firm has three hedge funds: Pure Alpha, All Weather, and Pure Alpha Major Markets funds. Bridgewater Associates returned as much as 23% last year, outperforming most of its peers as well as the hedge fund industry as a whole, which posted a negative 5% return. The firm has returned 14.7% per year over the past 20 years, compared with an annualized return of the S&P500 index of about 8.7%.
Ray Dalio is a billionaire with total net worth of $10 billion. Last July, Dalio officially terminated his role as CEO of Bridgewater Associates and assumed a position of a "Mentor." He is still the firm's co-CIO. Here are Dalio's largest positions that pay dividends:
Hewlett-Packard (HPQ) was the fourth largest position in the Bridgewater Associates' portfolio in the first quarter. That stake is currently valued at $33 million. The company sells computer products, technologies, software, solutions, and services. It has market capitalization of $38 billion. HP pays a dividend yield of 2.7% on a low payout ratio of 21%. Competitor International Business Machines (IBM) pays a dividend yield of 1.8%. Rivals Apple (AAPL) and Dell Inc. (DELL) will start paying dividends in next quarter, yielding 1.9% and 2.6%, respectively.
Hewlett-Packard's sales and earnings have dropped in recent quarters as the company faces stiff competition from the posh-products maker Apple. HP is implementing a restructuring process to reposition itself in the market. The process will result in 27,000 job cuts and savings being redirected toward cloud, big data, and security segments. Prior to the restructuring announcements, analysts pegged HP's EPS growth to an average rate of 4.7% per year for the next five years. The forecast growth rate is almost half that realized over the past five years. Still, this month, the company's shares received strong interest from several HP directors. The stock is trading at $19.36 a share, close to its 52-week low. It has a forward P/E well below the industry's, but some analysts caution this could be a value trap. Fund managers Seth Klarman (Baupost Group-see its stock picks) and D. E. Shaw (D. E. Shaw-check out fund holdings) are major investors in the company.
Microsoft Corporation (MSFT) was the eighth largest position in the Bridgewater Associates' portfolio in the previous quarter. It is currently valued at close to $21 million. Microsoft sells and licenses software products, enterprise consulting services, online information and content services, gaming consoles, and other products and services. The company pays a dividend yield of 2.7% on a low payout ratio of 29%. The company's peers Oracle (ORCL) and IBM Corporation yield 0.9% and 1.8%, respectively. Apple will pay a yield of 1.9% as of the next quarter. Competitor Google (GOOG) does not pay any dividends. Analysts expect Microsoft to grow its EPS at an average rate of 10% per year for the next five years. The company has just introduced a new tablet, the Surface, which will attempt to take over market share from Apple's hot-selling iPad. The company's shares are trading at $30.6 per share or some 10 times the company's forward earnings. This puts the IT giant's valuation below that of its industry. The stock is up 14.3% from the beginning of the year. Billionaires Ken Fisher and David Tepper are fans of the stock.
Rockwell Collins Inc.'s (COL) share in Dalio's hedge fund is currently valued at more than $17 million. The stake was bolstered by 230% in the previous quarter. The company has market capitalization of $7.2 billion. It produces communication and navigation systems as well as cockpit displays for military and commercial aircraft. Rockwell Collins pays a dividend yield of 2.6% on a payout ratio of 29%. Its rivals Honeywell International (HON), Raytheon Co. (RTN), and L-3 Communications (LLL) yield 2.8%, 3.6%, and 2.8%, respectively. Rockwell Collins saw its EPS grow at an average rate of 7.6% per year over the past five years. Analysts forecast that the company will expand its EPS at an average rate of 9.2% per year for the next half decade. Given the sharp cuts in the defense budget, this rate of growth is unlikely to materialize. The company's sales to government clients, accounting for a majority of its total revenues, have already dropped for four consecutive quarters. The future sales prospects are likely to disappoint. Citing this "exposure to a 'very difficult' defense market and slowing rates of aftermarket growth," Goldman Sachs recently cut its rating on the company to sell with a $46 price target. The stock is currently trading at $49.35 a share, down 12% year-to-date. As regards the company's valuation, the stock is trading at a discount to the aerospace industry. Fund manager Jeffrey Ubben (Valueact Capital-see its stock picks) and billionaire Steven Cohen are large investors in the stock.
Valero Energy Corporation's (VLO) share in the Bridgewater Associates' portfolio is currently valued at more than $18.6 million. The company is a $13.4 billion independent petroleum refiner and pipeline operator. It pays a dividend yield of 2.6% on a payout ratio of 22%. The company's competitors Sunoco (SUN) and HollyFrontier (HFC) pay yields of 1.7% and 1.8%, while rival Tesoro (TSO) does not pay any dividends. The company has seen solid revenue growth, has manageable debt levels, and boasts fair valuation. Analysts forecast that Valero Energy's EPS will grow at an average annual rate of 9.4% a year for the next five years. The greater availability of cheaper light sweet crude transported via new pipelines will help boost the company's margins. At present, the stock is changing hands at $24.15 a share, up 15% year-to-date. The stock is trading at a major discount relative to the refining industry. Recently, UBS raised its rating on the company to buy from neutral, saying that a recent drop in the Valero Energy's stock price has created an attractive investment opportunity. UBS analysts also emphasize that, given the expected large decline in the refiner's capital expenditures next year, free cash flow will get a boost, which will enable the company to hike its dividend. Billionaires David Tepper and George Soros are also big fans of the stock.
Dell Inc's share in Dalio's hedge fund is presently valued at $14.9 million. The company has market capitalization of $22 billion. It is a maker of mobility and desktop products, including notebooks, workstations, tablets, and other products. The company will initiate a quarterly dividend in the next quarter, which will yield 2.6% on a payout ratio of 18%. The company's competitor Hewlett-Packard and Lenovo Group (LNVGY) pay dividends yielding 2.7% and 2.1%, respectively. Dell's EPS expanded at an average rate of 10.6% per year over the past five years. Analysts forecast that the firm's EPS will grow at a slower average rate of 4.5% per year for the next five years. Soft international PC sales, especially in Europe, and the introduction of new tablets by Microsoft (Surface) and Google (Nexus 7) are likely to take a bite out of Dell's (and competitors') PC sales. The company's products have been struggling against the fierce competition from Apple's popular products, iPads and Macs. Dell's forward P/E is well below the industry average and the company's own historical metrics. The stock is trading at $12.57 a share, down 16% year-to-date. Billionaires David Einhorn and Jim Simons also hold the stock.