Neil Chriss is the founder and CEO of Hutchin Hill Capital, a $1.2-billion diversified, non-directional multi-strategy hedge fund. Chriss was identified by Ernst & Young and The Hedge Fund Journal in Tomorrow's Titans 2012 as one of the most influential emerging hedge fund managers. Tomorrow's Titans 2012 represents a list of 40 emerging hedge fund managers who are making significant contributions to the industry's development and success.
Chriss started out his hedge fund with a $300-million investment from billionaire Jim Simon's Meritage fund of funds. Chriss's career path included experience at Morgan Stanley, Goldman Sachs Asset Management, and billionaire Steve Cohen's SAC. According to Tomorrow's Titans 2012, Hutchin Hill returned "13% in 2008, 17% in 2009, and 7% in 2010."
Chriss's hedge fund has long positions in several dividend-paying stocks, including large financial services and banking corporations. Here is a closer look at four of his positions paying dividends:
Tyco International Ltd. (TYC) is the "world's largest pure-play fire protection and security company." Its market cap is some $13 billion. Over the past five years, the company's EPS grew at an average annual rate of 15.5%. The company is forecast to grow its EPS at an average annual rate of 13.5% for the next five years. The company benefits from recurring revenues (45% of the total) derived from relatively stable service contracts. Currently, the stock is paying a dividend yield of 2.2% on a payout ratio of 22%.
At the end of September, Tyco International Ltd. completed its separation into three publicly-traded companies covering its ADT North America residential security business, flow control products and commercial fire equipment. The company combined its flow control business with those of Pentair Inc. (PNR) in an all-stock deal worth $4.53 billion. Under the terms of the deal, each Tyco shareholder received one share of common stock of The ADT Corporation for every two shares of Tyco common stock and 0.239943 shares of Pentair Ltd. common stock for every share of Tyco common stock. Fractional shares of ADT and/or New Pentair are paid in cash. According to the company, "the distributions have been structured to qualify as tax-free dividends to Tyco shareholders for U.S. federal income tax purposes, while cash received in lieu of fractional shares will be taxable." For the reference, Pentair pays a dividend yield of 2.0%. Tyco International's competitor United Technologies Corp. (UTX) is paying a dividend yield of 2.8%. Tyco's stock has a forward P/E of 16.1x, which is above the average ratio for its respective peer group (at 13.8x). Value investor Jean-Marie Eveillard is bullish about the stock.
Williams Companies (WMB) is a $23-billion owner and operator of natural gas pipeline systems in the United States. The company saw its EPS expand at an average annual rate of 18.7% over the past five years, while its dividends expanded at an average rate of 24.2% per year over the same period. Analysts expect the company to bolster its EPS at an average annual rate of about 13% for the next five years. The company will continue to benefit from the shale gas boom in North America. Williams Companies is yielding 3.5% on a payout ratio of 200% of trailing earnings and 115% of last year's free cash flow. Despite large coverage ratios, the company's management plans to boost dividends each quarter in 2012 and then again in the subsequent two years. The overall increase in the payout should total 30% over the three-year period. The company's peers Kinder Morgan, Inc. (KMI) and Enbridge, Inc. (ENB) are yielding 4.1% and 2.8%, respectively. Regarding Williams Companies' valuation, on a forward P/E basis, the stock is trading at a premium to the pipelines industry. Its forward P/E of 30.1x compares to 28.6x for Kinder Morgan Inc. and 21.9x for Enbridge. Kenisco Capital's Michael Lowenstein and billionaire Leon Cooperman hold large stakes in the stock.
PNC Financial Services Group (PNC) is the 11th largest U.S. banking corporation by asset size. The bank has a market capitalization of $31 billion. Over the past five years, the bank's EPS shrank at an average rate of 8.3% per year, while dividends contracted at an average rate of 8.7% per year. Analysts forecast that the bank's EPS will expand at an average annual rate of 4.5% for the next five years. The bank's quarterly earnings and slowing growth have been disappointing. In the latest quarter, the bank's net interest margin compressed more than expected. Recently, the bank issued nearly $500 million in preferred stock, which will result in a substantial increase in preferred dividends next year. Currently, the bank has a dividend yield of 2.5% on its common stock and a payout ratio of 33%. Its competitors' yields are 0.4% for Bank of America Corporation (BAC) and 2.8% for JPMorgan (JPM). PNC Financial has fairly strong capital adequacy ratios. It has a high free cash flow yield of 16.5% and an ROE of 7.4%. Its price-to-book ratio of 0.9 is on par with that for its respective industry on average. The bank's forward P/E is 8.9x, compared to 11.4x for the banking industry. Value investor Ken Fisher is a big fan of the stock.
Bank of Montreal (BMO) is Canada's fourth largest banking institution by asset size. It is also considered one of the safest banking corporations in the world. Over the past five years, the bank's EPS shrank at an average rate of 1.0% per year, while its dividends increased at an average annual rate of 3.6%. Analysts forecast that BMO's EPS will expand at an average annual rate of 8.1% for the next five years. The bank has delivered positive earnings surprises in three out of four past quarters. The bank has shown revenue growth and improvements in credit quality, which have aided the bank's bottom line.
The stock pays a high yield, with modest, but consistent dividend growth. BMO stock's current yield is 5.2% and its payout ratio is 51%. BMO's competitors --The Toronto-Dominion Bank (TD), The Royal Bank of Canada (RY), and Canadian Imperial Bank of Commerce (CM)-- pay dividend yields of 3.8%, 4.2%, and 4.9%, respectively. BMO has a relatively high ROE of 15.4%, compared to Toronto-Dominion's 14.9% and The Royal Bank of Canada's 19.3%. BMO's price-to-book ratio is 1.5, compared to 2.0 for the bank's peer group on average. On a forward P/E basis, the stock is priced at 10.1x, compared to 10.6x for Toronto-Dominion, 11.1x for The Royal Bank of Canada, and 9.5x for the Canadian Imperial Bank of Commerce. BMO's stock is popular with fund managers Peter Rathjens and D. E. Shaw.