By Aubrey Tabuga
Bridgewater Associates is one of the most well-known asset management companies in the U.S. The famous hedge fund was founded by Ray Dalio in 1975. In 2010 and 2011, it was ranked as the largest and best-performing hedge fund manager in the world. Like Soros, it employs a global macro style of investment. The company currently has 1,200 employees. In 2011, it was reported to have $122 billion worth of assets under its management.
The top dividend stocks favored by Ray Dalio and Bridgewater are shown in this article. My selection criteria for screening is based on a dividend yield of above 3%, stable dividend payments, and recent positive performance of the stock. I picked Microsoft (MSFT), Walgreen (WAG), Johnson & Johnson (JNJ), Eaton Corporation (ETN), and Verizon Communications (VZ).
% of Portfolio
EPS next year
Johnson & Johnson
Annualized Dividend Payments
Microsoft, the proud maker of Windows, is soon to unveil its Surface Tablet this month along with Windows 8. Microsoft is one of the world's largest software companies. It is the producer of operating systems for various platforms and devices as well as hardware. The brainchild of Bill Gates and Paul Allen currently has a huge market capitalization of $261.5 billion and a 94,000-strong workforce. The company's Chief Executive Steve Ballmer recently put forward the company's future direction as something that will focus more on hardware and online services, in an effort to level up in competition with rival Apple.
Like fund managers Tepper and Einhorn, Microsoft is likewise favored by Ray Dalio. Bridgewater has been increasing its position in the company in the last two quarters. Currently, Microsoft comprises 0.70% of the hedge fund's total portfolio. It is noted that Bridgewater sold almost all of its position in the Windows maker during the last quarter of 2011.
Microsoft is a good dividend payer. Its annualized dividend has been rising consistently. The positive growth prospect in the future is seen through the higher EPS estimate for next year of $3.30 compared with the trailing EPS of $2.00. The net margin of 23.03% suggests that the company is highly profitable. My FED+ fair value estimate for Microsoft is about $36 to $44. The stock has at least 25% upside potential to reach its fair value.
Walgreen's business involves operating a drugstore chain the U.S. It was incorporated in 1909. The company sells its products and services not only through drugstores but also various channels. The products include prescription and nonprescription drugs, household products, personal care, and beauty care among others. The pharmacy services it offers include retail, medical facility, infusion, care services, and mail services. Walgreen is the country's largest drugstore chain with total sales of $72 billion in the fiscal year 2012. Recently, the company announced that it will be a part of preferred pharmacy networks of four national Medicare plan sponsors (Part D). The plans offered aim to deliver cost savings for Medicare beneficiaries. The inclusion of Walgreen as a provider will improve access to pharmacy services.
Bridgewater has increased its position in the stock six-folds in the second quarter. During the first quarter, the hedge fund sold over three-fourths of its holdings. It is remembered that the fund initiated its position in the company four quarters ago.
WAG has a spotless record in dividend payment. It continuously pays its investors, and with a rate that has been increasing through the years. The August payment amounting to $0.275 is 20% higher than that for August last year at $0.225. Walgreen is showing robust performance. A higher EPS of $3.72 is expected next year. The current EPS is $2.42. The long-term annual growth estimate for the next 5 years is four times (12.77%) that for the past 5 years (3.57%). Based on this estimate, my FED+ fair value estimate for the company is about $44 to $64. The stock has at least 24% upside potential to reach its fair value.
Johnson & Johnson
Johnson & Johnson is a New Jersey-based healthcare conglomerate that has a 117,900-strong workforce. JNJ produces and sells a wide range of healthcare products in baby care, oral care, wound care, and women's health. JNJ's diversified products range from nutritionals and medical devices to drugs, both over-the-counter drugs and prescription. It is the maker of prescription drugs Edurant, Xarelto, and Zytiga. JNJ is also behind brand names like Tylenol, Listerine, Clean & Clear, Neutrogena, and Band-Aid, among others. JNJ's Janssen Research & Development, LLC recently presented encouraging data on its phase III trial on canagliflozin, a type II diabetes treatment candidate, at the European Association for the Study of Diabetes annual meeting. The diabetes market is one that JNJ shares with a number of rivals but which has a significant commercial potential.
The hedge fund has augmented its shares in JNJ during the second quarter. The company currently makes up 0.33%, amounting to $22 million, of the fund's total holdings. It has been on the 13F file of Bridgewater for the last six quarters.
JNJ has a dividend yield of 3.57%. It has not failed to pay its investors, and the amount has been rising continuously for many years. For instance, the August payment of $0.61 is an improvement from that for the same period last year of $0.57. The growth prospect for JNJ is good. The estimated EPS for next year is $5.47, higher than the current one, which is $3.24. My FED+ fair value estimate for the stock is about $54 to $76. The stock is fairly valued at the moment.
Eaton Corporation is a power management company founded in 1916 that truly has a global reach. With a market capitalization of $15.14 billion, ETN sells directly or through various channels its products in around 150 countries. It is a provider of electrical components and systems for a diversified set of industries that include industrial, commercial, utility, automotive, construction, oil and gas, and agriculture, to name just a few. TheStreet Ratings has recently reiterated a buy for Eaton with a rating score of B. The report mentioned the company strengths in a number of areas including a solid stock performance, impressive EPS growth, reasonable debt levels, and good cash flow.
Bridgewater has drastically increased its holdings in the Cleveland-based firm in the second quarter. From a mere 0.01% share, the company now comprises 0.23% of the fund's portfolio. Prior to the second quarter, Bridgewater has been selling large chunks of its shares in ETN.
Eaton's dividend yield based on Finviz.com data is 3.28%. It has been consistently paying dividends to its shareholders for years now. The stock is expected to grow to an EPS of $4.77 next year, slightly higher than the current EPS of $4.18. My FED+ fair value estimate for the stock is about $66 to $90. The stock has at least 48% upside potential to reach its fair value.
Verizon Communications Inc.
Verizon Communications was founded in 1983 as Bell Atlantic Corporation. It is a provider of communications, information, and entertainment products and services to a wide clientele worldwide. The company has a market capitalization of $130.42 billion. In 2000, Bell Atlantic changed its name into Verizon Communications. The New York-based communications giant is now serving over 94 million retail customers. Recently, Verizon announced the launching of its 4G LTE service on Oct. 18. It will become available in 417 markets across the US. The service is said to be a blazing fast mobile broadband service.
Bridgewater Associates has decreased its holdings in VZ in the second quarter. It is noted that last quarter the fund renewed its position in VZ by purchasing $17 million worth of shares. Toward the end of the 2011, the hedge fund sold its position in the company.
The company has a huge dividend yield of 4.47%. Verizon is one of the companies that have a great track record in dividend payments. It does not only pay regular but also incrementing dividends. The earnings of the company are likewise expected to grow as shown by a higher EPS next year of $2.83 that is almost three-folds the EPS of $1.00. My FED+ fair value estimate for the stock is about $26 to $40. The stock looks a bit expensive at the current valuation. However, this is mostly due to one-time losses experienced by Verizon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.