By Aubrey Tabuga
The Pershing Square Capital Management is a hedge fund founded by William Ackman in 2004 with initial capital of $54 million. As of June 30, 2012, the hedge fund had assets under management of $11 billion. Ackman uses an activist approach. He reportedly initiated a position in Procter & Gamble in the second quarter of 2012 to take an activist role in the company. Bill Ackman, as he is more commonly known, has previously launched an activist campaigns against McDonald's (NYSE:MCD) and Wendy's. Recently, he has been exercising his style yet again by flexing an arm on both Procter & Gamble (NYSE:PG) and General Growth Properties (NYSE:GGP).
In this article, I discuss Ackman's top dividend stocks. I looked at not only the dividend yield but also on stable dividend history. The dividend stocks that are favored by Bill Ackman are Canadian Pacific (NYSE:CP), Procter & Gamble, General Growth Properties, and J.C. Penney (NYSE:JCP).
% of Portfolio
EPS this year
EPS next year
Canadian Pacific Railway
Procter & Gamble
General Growth Properties
J.C. Penney Company
Sources: Finviz.com and Ycharts.com; as of October 4, 2012
Annualized Dividend Payments
Source: Nasdaq.com and Dividata.com as of October 4, 2012
Canadian Pacific Railway Ltd.
Canadian Pacific Railway serves the Canadian principal business centers with its 14,700-mile network. CP's railway service has four primary corridors: Western, Eastern, Central and Northeast United States. The company's business includes bulk grain, coal, and sulfur and fertilizer transportation. Merchandise like forest products, automotive, industrial and consumer products, and intermodal ones are also transported by the extensive railroad networks. With a market capitalization of $14.75 billion, the railway company employs 17,701 workers. Last month, CP launched its enhanced intermodal services that connect Vancouver to Toronto and Chicago. These new services are expected to be faster, hence allowing optimum utilization of assets.
The hedge fund initiated its position in the company 4 quarters ago, when it bought 4 million shares. It has been increasing its holdings in the couple of quarters that followed. At present, it holds 24 million shares amounting to around $1.8 billion. CP is currently Pershing's top investment, comprising 23% of its total portfolio.
CP's dividend yield is 1.70%. The company has consistently paid dividends to its investors. The annualized dividend amount has also been rising. From $0.66 in 2006, the dividend rose to $0.93 in 2008, and then to $1.17 in 2011. The quarterly payments this year are also higher than those in 2011. The earnings prospect for the company is likewise optimistic. The EPS for next year of $5.53 is far above the trailing EPS at $3.89.
Procter & Gamble
Procter & Gamble Company is a producer of consumer packaged goods. The company markets its products worldwide through mass merchandisers, grocery stores, and other high-frequency shops. PG has 2 global business units as of the second quarter in 2012. These are beauty and grooming and household care. Wal-Mart Stores (NYSE:WMT) and its affiliates sell a large chunk of the company's products. 14 percent of the total revenue is derived from sales in Wal-Mart stores. PG has recently sold its Pringles business to Kellogg, and its PUR business to Helen of Troy Ltd. PG is an industry leader with a market capitalization of $190 billion.
According to Whalewisdom's 13F Holdings history, the fund's current investment in PG is the first in at least 8 quarters. In the second quarter, Pershing Square Capital bought a total of 21.9 million shares, worth $1.3 billion. PG is currently the number 2 stock owned by the fund, which makes up around 17.7% of the fund's portfolio.
PG has been offering steadily rising dividends to its shareholders. The annualized dividends have been increasing each year at an average rate of 10.6 percent. In 2006, PG paid $1.21, while in 2011 it paid $2.06. With a yield of 3.24%, PG is indeed one of Pershing's top dividend stocks. Meanwhile, growth expectations are positive for this company. Its EPS being estimated to increase to $4.22 next year from the current level of $3.11.
General Growth Properties
GGP is a real estate investment trust that has a market capitalization of $18 billion. The company owns and operates 136 regional malls in 41 states. Its subsidiaries and affiliates manage retail and other rental properties and malls all over the United States. Pershing Square has been pushing for a GGP and Simon Property merger for a while. The hedge fund manager says that investors at GGP may lose out, should Brookfield undertake a stealth takeover of GGP. The Simon merger, Pershing's Ackman insisted, would be the win-win solution.
The hedge fund has been holding on to its investment in GGP for a few years. As of June 30, 2012, GGP formed 17.2% of the fund's total portfolio. It has not made any changes within the last four quarters. The fund started expanding its holdings in the company during the end of 2010 until the first two quarters of 2011.
GGP paid its investors $0.38 in 2010 and $0.40 in the last year. On October 29, the shareholders will be paid $0.11, a rate higher than the payment made in July. The company has a high dividend yield of 2.30%. Meanwhile, earnings are expected to increase next year as shown by the estimated EPS of $0.31, which is higher than the current EPS of -$0.46.
J.C. Penney Company
J.C. Penney is a giant retailer with 159,000 employees manning its over 1,100 department stores in the United States and Puerto Rico. Incorporated in 2002, JCP has a current market capitalization of $5.23 billion. Aside from its department stores, JCP also markets its merchandise and services through its website - jcp.com. The company has acquired the global rights for the Liz Claiborne trademarks and intellectual property. JCP has been experiencing difficulties recently. Declining revenue and margins are a manifestation of tough financial conditions and difficulty in regaining customers amidst the strong competition it faces from competitors.
In an effort to restructure the retail company, Pershing has invested a lot in JCP. In fact, JCP is one stock where the hedge fund maintains a huge position. As of the second quarter, the fund owns 39 million shares in JCP worth $910 million. This is equivalent to 12% of the total fund portfolio. Almost 19% of the outstanding shares belong to Pershing Square.
Notwithstanding its current problems, JCP has a good track record in offering stable dividends. The annualized dividend of 80 cents translates into a high yield of 3.43%. Last month, the company's CEO, Ron Johnson, articulated the company's expectations and future prospects. Critics of JCP, however, need to see more of doing, rather than promises.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Aubrey Tabuga, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.