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JANA Partners is a $2.4-billion hedge fund established and managed by Barry Rosenstein. The fund is "a value-oriented investment advisor specializing in event-driven investing." JANA Partners applies a risk arbitrage strategy. All its investments are based on thorough equity research. Rosenstein is also known for his investor activism. Since inception in 2001, JANA Partners has returned 300% in total. This year through the end of June 2012, the hedge fund gained 11.3% compared to 9.5% for the S&P 500 index.

The fund makes investments in undervalued companies whose P/E is below industry average, which have high free cash flow, and which boast attractive dividend yields. Here is a quick overview of five dividend-paying picks from JANA Partners hedge fund:

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The McGraw-Hill Companies, Inc. (MHP) is the third largest position in JANA Partners' portfolio, according to the fund's latest 13F filing. At the end of the second quarter, that stake was valued at almost $122 million. The $14-billion publisher and provider of financial information and media services, and the owner of Standard and Poors, McGraw-Hill, is paying a dividend yield of 2.1% on a payout ratio of 32%. Its peers Pearson PLC (NYSE:PSO), Thomson Reuters Corporation (NYSE:TRI), and Moody's Corp. (NYSE:MCO) pay dividend yields of 4.6%, 4.4%, and 1.6%, respectively. The company recently beat analyst estimates for its EPS. It is expected to grow EPS at an average rate of 11.4% per year for the next five years, more than four times faster than on average over the past five years. McGraw-Hill and CME Group started their new index business, part of a joint venture, with the launch of S&P-Dow Jones Indices in June 2012. As a part of the company's growth and value plan, McGraw-Hill is in the process of splitting into two companies, namely McGraw-Hill Financial and McGraw-Hill Education. The company's shareholders will receive one share of the new education company for every three shares held. The company has a free cash flow yield of 4.2%, ROE of 43%, and ROIC of 27%.The shares are up 32% over the past year. Billionaire Leon Cooperman has also been a big fan of the stock.

Energizer Holdings (NYSE:ENR) was the fourth largest holding in JANA Partners' portfolio in the second quarter. The position was worth some $121 million at the end of the quarter. The company is a manufacturer and seller of batteries, portable lighting, and personal care products. It pays a dividend yield of 2.4% on a payout ratio of 32%. Its competitors Panasonic Corporation (PC) and Procter & Gamble (NYSE:PG) pay dividend yields of 1.8% and 3.4%, respectively, while rival Spectrum Brands Holdings (NYSE:SPB) does not pay dividends. Energizer Holdings recently posted declines in revenues and EPS for the previous quarter due to sluggish sales of both personal care and household products. The battery market remains weak and increased competition is biting into sales of Energizer products. Despite the weakness, the company's EPS is forecast to expand at 10.5% per year for the next five years. This expected growth will be supported by the battery maker's diversified product mix, innovative product pipeline, loyal customers, and the ongoing restructuring efforts. The stock has a high free cash flow yield of 10.8%, ROE of 15%, and ROIC of 7.2%. In terms of price-to-earnings, price-to-book value, price-to-sales, and price-to-cash flow, the stock is trading at a notable discount to its respective industry. The stock is down about 3% over the past year. Energizer Holdings is also popular with hedge funds Atlantic Investment Management and Adage Capital Management.

Coca-Cola Enterprises (NYSE:CCE) is another large stake in Rosenstein's portfolio. In the second quarter, that stake was valued at $112 million. The company has exclusive rights to manufacture, sell, and distribute Coca-Cola brand beverages in Western Europe. It experienced robust EPS and dividend growth over the past five years, with EPS growth averaging nearly 16% per year and dividends rising at a rate of 19% per year. Slower growth in Europe will likely moderate Coca-Cola Enterprises' revenue and EPS growth in the coming years. However, JANA Partners is eyeing the expected Coca-Cola Enterprises' purchase of a German bottler from Coca-Cola Company (NYSE:KO) as a potential catalyst for the stock. The stock has a free cash flow yield of 3.2%, ROE of 23.6%, and ROIC of 12%. The stock is paying a dividend yield of 2.2% on a payout ratio of 28%. Its competitors PepsiCo (NYSE:PEP), Kraft Foods (KFT), and Danone (OTCQX:DANOY) pay dividend yields of 3.0%, 2.8%, and 3.0%, respectively. Coca-Cola Enterprises is trading at a major discount to its peer group. The stock is up 14% over the past year. Billionaire and activist investor Dan Loeb is also bullish about the stock.

Apple Inc. (NASDAQ:AAPL) was also one of JANA Partners' top picks in the second quarter. The stake, valued at $95 million at the end of the quarter, was hedge fund's sixth largest. Apple, a $621-billion company that sells electronics, mobility products, and software, has seen explosive growth of its top-selling products, including iPhone, iPad, iPod, and Mac. Analysts forecast that the company's EPS will grow at a rate of 21% per year for the next five years. The company is an exceptional growth and value story. The stock has a free cash flow yield of 6.9% and ROE/ROIC of 44%. The stock is priced slightly above its peer group. However, it is still trading at trailing and forward P/Es below the stock's five-year average. Apple pays a dividend yield of 1.7% on a payout ratio of 25%. Its competitors Microsoft (NASDAQ:MSFT) and Hewlett-Packard (NYSE:HPQ) pay dividend yields of 2.6% and 2.7%, respectively, while rival Google (NASDAQ:GOOG) does not pay any dividends. Apple's stock is up a spectacular 87% over the past year. Billionaires David Einhorn, Stephen Mandel, and Jim Simons are also major investors in the stock.

Phillips 66 (NYSE:PSX) was the 10th largest position in JANA Partners' portfolio at the end of the second quarter. That stake was valued at more than $85 million. With a total market capitalization of $27 billion, this oil refiner was a recent spin off from ConocoPhillips (NYSE:COP). The company pays a dividend yield of 2.0% on a payout ratio of 10.3%. Competitors Valero Energy (NYSE:VLO), Tesoro Corporation (NYSE:TSO), and Marathon Petroleum Corporation (NYSE:MPC) pay dividend yields of 2.4%, 1.4%, and 2.8%, respectively. Phillips 66 is expected to boost its EPS at 6.0% per year for the next five years. The stock boasts a remarkable free cash flow yield of 20%, ROE of 20%, and ROIC of 14.5%. The company has relatively low ratio of total debt to equity of 42%. Until recently, the stock was attractive on valuation. Its price to book value ratio is below industry average. However, due to a major rally in its shares in recent months, Phillips 66 now has a forward P/E above those of competitors Valero Energy and Marathon Petroleum Corporation. Rival Tesoro Corporation's forward P/E is on par with that of Phillips 66. The shares are up 31% over the past year. The stock has been particularly popular with Warren Buffett.

Source: JANA Partners' 5 Dividend Stock Picks