Billionaire Steven Cohen's Top 5 Dividend Picks

Includes: ESV, JWN, MUR, SLB, TGT
by: Dividendinvestr

Steve Cohen, referred to by the Wall Street Journal as a "Billion Dollar a Year Man," founded SAC Capital in 1992 with $20 million of seed capital. Today the firm has $16 billion in assets under management. The fund has 40 portfolios, with investments based primarily on the long-short equity strategy. The fund has grossed 30%, on average, over the past two decades, significantly outperforming the S&P 500 (NYSEARCA:SPY) by 22% since the fund's inception. Last year, the fund returned 8% net of fees, outperforming its peers, on average. SAC Capital initially focused on an active trading strategy, but since has repositioned its investment philosophy applying a multi-strategy approach (a combination of fundamental and quantitative approaches) that focuses on research and risk management.

Steve Cohen has a total net worth of some $8.3 billion. He is ranked number 106 on the list of Forbes Billionaires, and number 38 on the list of Forbes billionaires in the United States.

Here are Steve Cohen's 5 largest positions that pay dividends:

Ensco (NYSE:ESV) is the third-largest position in Cohen's portfolio, currently valued at more than $214 million. This stake was increased by 86% in the first quarter. The company is the world's second-largest offshore driller with market capitalization of $10 billion. Ensco has seen its revenue contract by an average rate of 7% a year over the past five years, as gross and operating margins declined in the 2009-2011 period. Analysts forecast robust EPS growth averaging 15% per year for the next five years. Given that oil price is the key determinant of the offshore drillers' profitability, declining oil prices, if sustained, could dampen this expected robust growth. Ensco pays a dividend yield of 3.4% on a payout ratio of 41%. The company's dividend has risen 15 times from the rate paid in 2009, growing by an average annual rate of nearly 71% over the past five years. Competitors Seadrill (NYSE:SDRL), Noble Corporation (NYSE:NE), and Oceaneering International (NYSE:OII) pay dividend yields of 7.3%, 1.8%, and 1.6%, respectively. The stock is currently changing hands at $42.2 a share, down 14% year-to-date. On a forward P/E basis, the company is trading at a large discount to its own historical metrics. Billionaire David Einhorn also holds a large stake in the company.

Murphy Oil Corporation's (NYSE:MUR) share in SAC Capital Advisors' portfolio is presently valued at about $178 million. The company is an $8.5 billion oil, natural gas, and natural gas liquids producer with operations in the United States, Canada, Malaysia, the United Kingdom, and Ecuador. The company is engaged in an aggressive exploration campaign around the world. Revenue at Murphy Oil Corporation has increased smartly over the past couple of years, while EPS growth has been lackluster. Last year, the company's exploration campaigns in the Republic of Congo, Indonesia, and Suriname turned up dry. According to Barron's "half of Murphy's 2011 wells turned out to be uneconomic." The company's goal to boost oil production from 190,000 bpd to 300,000 bpd by 2015 will likely fail. Now that oil prices have declined, it is likely that the company's forecast EPS growth of 14.3% per year for the next five years will be difficult to materialize. The company recently lost its CEO. The company pays a dividend yield of 2.5% on a payout ratio of 24%. Its peers Marathon Oil Corporation (NYSE:MRO) and Valero Energy (NYSE:VLO) pay yields of 2.9% and 2.6%, respectively. As regards the valuation, on a forward P/E basis, the stock is trading at a slight discount relative to its peers. At present, the stock is changing hands at $43.96 a share, down 24.4% year-to-date. Fund manager Cliff Asness also holds a stake in the company.

Nordstrom (NYSE:JWN) is the seventh-largest position in Cohen's portfolio. It is currently valued at $185 million. The stake was increased by 58% in the quarter ended March 31. The company is one of the U.S. leading fashion specialty retailers. It pays a dividend yield of 2.2% on a payout ratio of 34%. Its principal competitors Bloomingdale's, Inc. and Neiman Marcus, Inc are privately held. The company's strengths include strong revenue growth, solid return on equity, fair EPS growth, and solid stock performance. The stock is trading with a forward P/E slightly below the average apparel industry P/E. Analysts forecast that the retailer's EPS will expand at an 11.5% annual rate for the next five years. The stock is changing hands at $47.94 a share, down 3.6% from the beginning of the year. Among fund managers, the company is also popular with Ken Griffin (Citadel Investment Group-see its top picks).

Schlumberger's (NYSE:SLB) share in SAC Capital Advisors' portfolio is valued at $172 million. The company has market capitalization of $80 billion. As the world's largest oilfield services company, Schlumberger provides everything from seismic surveys, formation evaluation, and drilling technologies to well construction and project management. Buoyed by energy exploration and drilling, the company is expected to see its EPS expand by 18% per year for the next five years. Still, this EPS outlook may be overly optimistic given the expected slowdown in the global economies in the near-to-medium term. Schlumberger pays a dividend yield of 1.8%. Its payout ratio is 28%. The company's core rivals Halliburton Company (NYSE:HAL) and Baker Hughes Incorporated (NYSE:BHI) pay yields of 1.3% and 1.5%, respectively. The company has robust revenue growth above that for the industry, debt levels below industry metrics, and solid return on equity. The company's forward P/E is below the industry's ratio and the company's own historical P/E average. The stock is currently trading at $60.06 a share, down 14.3% year-to-date. Billionaire Ken Fisher and hedge fund manager Andreas Halvorsen are fans of the stock.

Target Corporation's (NYSE:TGT) share in SAC Capital Advisors' portfolio is valued at $140 million. The company is the second-largest retailer in the United States after Wal-Mart (NYSE:WMT). It has market capitalization of $38 billion. The company pays a dividend yield of 2.5% on a payout ratio of 33%. The company's peers Wal-Mart and Costco Wholesale Corporation (NASDAQ:COST) pay dividend yields of 2.4% and 1.2%, respectively. Target has been raising dividends at a robust 20% annual rate for the past five years. The company is forecast to see a robust EPS growth averaging nearly 12% per year for the next half decade. This rate of growth will be double the average annual EPS growth rate realized over the past five years. The retailer is currently changing hands at $57.23 a share, up 12% year-to-date. This puts its forward valuation slightly below that of its peers and the company's historical metrics. Fund managers Jonathon Jacobson (Highfields Capital Management-check out its holdings) and Wallace Weitz are bullish about the company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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