Edited By Kate Boehme
John Paulson, a prominent hedge fund manager, founded his company Paulson & Co. in 1994. Paulson has become a legend for famously betting against the subprime housing market in 2007, where he earned a payout of $3.5 billion. Currently, Paulson manages about $30 billion in assets. As a former investment banker, Paulson uses both merger arbitrage opportunities and credit default swap options. His style of fund management is distinctive and extremely complex. Known as a gambling investor, he made $4.9 billion in 2010 from his portfolio thanks to his gigantic bet on gold, a record in the hedge fund industry. While the performance of his fund was well below average in the last year, Paulson is still one of the most remarkable names in the hedge fund industry. Therefore, it is worth digging deeper into the stocks in Paulson's portfolio.
To determine the portfolio's top dividend stocks, I investigated Paulson's top holdings in terms of the number of shares, and selected those with the highest dividend yielding ones. Currently, Paulson's top dividend stocks include HCA Holdings, Cablevision, Kinder Morgan, Gold Fields, and JP Morgan. Here is a brief analysis of the top dividend stocks in Paulson's portfolio:
Shares Held- 6/30/2012
HCA Holdings Inc.
Cablevision Sys Corp
Kinder Morgan Inc.
Gold Fields Ltd New
JPMorgan Chase & Co
Sources: finviz.com and markershuttle.com as of August 31, 2012
HCA Holdings, Inc. (NYSE:HCA)
HCA Holdings Inc. is one of Paulson's biggest buys for the second quarter of 2012. The company drastically increased its position this quarter by about four times that of the previous period. At present, Paulson owns 7.95 million shares in HCA, the largest private operator of healthcare facilities. HCA has a current market capitalization of $12.39 billion.
HCA has a high dividend yield of 7.1 percent. Last February, it paid $2 per share as a special dividend. With a payout ratio of 33.17 percent and a net profit margin of 9.52 percent, HCA is not only attractive to Paulson, but also to Blackrock Advisors, Lone Pine Capital, and FMR.
HCA's growth this year was chiefly driven by the acquisition of a large portion of HealthONE and the increased utilization of its own facilities. With an EPS of $6.37 as of August 29, 2012, HCA is more profitable than its competitors, Health Management and Tenet Healthcare. The stock's year-to-date performance is 38.69 percent. It's long-term growth estimate for the next five years is high at 10.74 percent per year. Sales have also been increasing annually at about five percent over the last five years. The P/E ratio currently stands at 4.45, with a positive outlook as the forward P/E ratio is at 7.53.
Cablevision Systems Corporation (NYSE:CVC)
Cablevision Systems Corporation is a New York-based telecommunications and media company. Founded in 1973, CVC has a market capitalization of $4 billion with current profit margin of 3.29 percent. It offers digital television, telecommunications, voice, and business communications solutions. Recently, the cable company entered into an agreement with the National Football League to carry the NFL Network and Redzone channel.
CVC currently sells at about $15. Its performance in the quarter, though, is up at 35.33 percent. CVC had an annual dividend yield of 4.08 percent, as of August 30. Meanwhile, the five-year average dividend yield has been 10.50 percent. The payout ratio, however, is very high at 74.22 percent, compared to its historical payout ratio of 26.78 percent. However, one area in which CVC has yet to prove itself is in its ability to exhibit consistent dividend growth over time. Thus far, the annual dividend amount has been stable at $0.05 since 2010.
Kinder Morgan, Inc. (NYSE:KMI)
Kinder Morgan Inc. is one of the largest energy companies in North America. It owns around 75,000 miles of pipelines that transport natural gas and refined petroleum products as well as other gas utilities. The Houston-based company's stocks currently sell at $35.44, up by 1.69 percent within the week. KMI is an industry leader in terms of its future long-term growth estimates for the next five years, which stand at 34.41 percent. The company's profit margin is 7.41 percent as of August 30, higher than those of its peers such as Enterprise Products Partners and Cheniere Energy.
With a dividend yield of 3.95 percent, KMI is one of Paulson's top dividend stocks. The cash value for dividends has experienced consistent upward movement from $0.14 in April 2011 to $0.31 at the start of 2012. In July 2012, the dividend amount had risen to $0.35 per share. One issue with this stock, however, is its very high payout ratio of 117.57 percent as of August 30, 2012.
During the second quarter of 2012, KMI acquired El Paso Corporation. During this period, it also purchased the Tennessee Gas Pipeline through Kinder Morgan Energy Partners.
Gold Fields Limited (NYSE:GFI)
Gold Fields Limited is just one of Paulson's gold holdings. Gold Fields produces gold bullion. It holds gold reserves in several African countries, Australia, and Peru. Paulson currently owns 18 million shares in Gold Fields. The company's dividend yield as of August 30 stood at 3.59 percent, making it one of Paulson's top dividend stocks. Its low payout ratio of only 7.27 percent indicates, however, that the company is retaining a large portion of its earnings either for reinvestment or for future growth. Nevertheless, the GFI dividend has been growing steadily since February 2010, when the amount stood at $0.065. The July 2012 payment was valued at $0.30.
Gold Fields has a relatively high profit margin of 16.93 percent, but future long-term growth prospects are not good since the EPS for the next five years is -13.6 percent. Selling at $12.32, GFI stock performance has gone down within the week, month, quarter, and year. GFI is not the only gold company to suffer of late; the stocks of GoldCorp, another top gold-producing company, also fell recently. The latest trends in the gold industry have therefore been fairly mixed.
JPMorgan Chase & Co. (NYSE:JPM)
JPMorgan Chase & Co. is one of Paulson's biggest buys for the second quarter. In fact, Paulson has just acquired four million shares of United States' biggest bank. With a dividend yield of 3.25 percent, JP Morgan is at the top of Paulson's stocks with regards to dividends. However, its payout rate of 26.18 percent is lower than the historical ratio of 36.41 percent.
JP Morgan is a highly profitable financial holdings company, with a market capitalization of $141 billion and a net margin of 19.12 percent. Its future growth prospects are high as well, as reflected by the long-term annual growth estimate for the next five years of 7.15 percent. With an EPS at 4.32, it is understandable why JP Morgan is likewise favored by Allianz Asset Management, Citigroup, Putnam Investment, and Westfield Capital.
The dividends payment history of JPM showed a major leap from 2010's $0.20 to $0.80 in 2011. Prior to the financial crisis of 2008, JPM was a strong example of stability as far as dividends were concerned. The stock is still one of the best in terms of dividend safety.