In this article we present the list of 10 best high dividend stocks to buy now. Click to skip ahead and see the top 5 high dividend stocks to buy.
We are going to be in a low interest rate environment for the foreseeable future. We aren't going to get into the details why this is happening. We understand that United States is now one of the top 25 countries with the highest debt to GDP ratios and Federal Reserve will be forced to keep the interest rates low as much as it can. If you are one of those retirees who saved for decades and rely on low risk long-term government bond yields to cover your expenses, this is the time to get out. Long-term treasuries are almost guaranteed to deliver below inflation returns for the next 10 years if not 30.
That's why in this article we are looking into the best high dividend stocks to buy now. Income investors don't really have a lot of options at this point. We saw this coming back in March 2020 (within 2 days of the market bottom) and told our subscribers to cover their short positions (by the way we recommended these short positions just 4 weeks earlier before the stock market tanked 35% because of the coronavirus pandemic) and go long on equities. The stock market returned more than 50% since March 23rd, but it isn't too late to buy stocks.
Investing in high dividend stocks is very tricky because high dividend stocks usually have high dividends for a reason. Their stock prices may be depressed for structural reasons and they may be on their way to bankruptcy. So, investors have to be mindful about the potential risks in high dividend stocks. In this article we will use hedge fund sentiment towards each high dividend stock in the Global X SuperDividend U.S. ETF (DIV) to identify the high dividend stocks with the most upside potential.
Hedge funds don't invest in high dividend stocks because they need the dividend payments. They invest in high dividend stocks because they believe high dividend stocks are undervalued and are more likely to outperform the market. Their main goal is to generate capital gains. By the way Insider Monkey's monthly newsletter has been successfully using hedge fund filings to identify some of the best stocks to buy since March 2017. Our rolling portfolio of stock picks that are shared in the monthly newsletter returned more than 120% in 3.5 years and beat the S&P 500 Index by more than 66 percentage points (see the details here). That's why we believe there is a lot of value in tracking hedge fund sentiment towards high dividend stocks.
The Global X SuperDividend U.S. ETF (DIV) currently has 46 stocks in it and these stocks have an expected distribution yield of 7.6% at the moment. Here are the 10 best high dividend stocks to buy now:
The Kraft Heinz Company was once a high flying $90 stock adored by investors like Warren Buffett. Today it is a turnaround story. It is trading at a discount to its peers and most investors are waiting on the sidelines for the company to show them some progress. The company trades at a forward P/E of only 13 and offers a well supported 5.2% annual yield.
KHC was in the portfolios of 35 hedge funds at the end of June. Warren Buffett’s Berkshire Hathaway has the biggest position in The Kraft Heinz Company (NASDAQ:KHC), worth close to $10.4 billion, comprising 5.1% of its total 13F portfolio. Sitting at the No. 2 spot is Millennium Management, led by billionaire Israel Englander, holding a $60.1 million position. Other professional money managers that hold long positions contain billionaire Ken Griffin’s Citadel Investment Group, Jack Woodruff’s Candlestick Capital Management and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Kraft Heinz Company (NASDAQ:KHC), around 5.13% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, setting aside 3.15 percent of its 13F equity portfolio to KHC.
Bunge Limited is in the food business. It sources, processes and supplies oilseeds and grains. It is an essential part of the global food chain. John Lampert of GAM Investments pitched Bunge as a long-term investment idea at the beginning of 2017. Bunge shares were trading above the $80 level by February of the same year. Lampert believed that Bunge shares will appreciate more than its peers as the stock at that time had a forward P/E of only 11.5 and deliver strong returns on the back of expanding populations, increasing incomes and demand growth for food supplies. Today Bunge shares trade for $57 and the company generated less revenue than it did in 2016.
There were a total of 37 hedge funds with bullish BG positions at the end of September. Adage Capital Management was the largest shareholder of Bunge Limited (NYSE:BG), with a stake worth $125.2 million. Trailing Adage Capital Management was Moore Global Investments, which amassed a stake valued at $117.7 million. Millennium Management, Renaissance Technologies, and Greenhaven Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to Bunge Limited (NYSE:BG), around 4.13% of its 13F portfolio. Moore Global Investments is also relatively very bullish on the stock, setting aside 3.16 percent of its 13F equity portfolio to BG.
General Mills is another food stock that made our list of the 10 best high dividend stocks to buy. In 2018 we published an article with the title "Why Food Stocks May Spoil In Your Portfolio" and discussed GIS and a few other processed food stocks. General Mills shares didn't move much over the last 5 years. In November 2015 it was trading at $58 and today GIS stands at $59 per share. This isn't bad news though. GIS investors were still able to generate a tiny bit of capital gains over the last 5 years, but more importantly they have been collecting dividend payments. Today GIS shares offer an annualized dividend yield of 3.4% which is much better than the 0.8% offered by 10-year Treasuries.
There were a total of 37 hedge funds with bullish GIS bets at the end of September.
Bunge and General Mills don't look like stocks with huge upside potential, but Altria does. The stock was trading above $75 in 2017 and has been declining since then. We didn't like the stock in 2017, but it looks really cheap now. In September we published an article that details why MO looks like a cheap stock. Artko Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here, and talked about why they sold MO:
“Altria Group (MO) – We made an 9% Core Portfolio investment in Altria group at sub $40.00 in 2019 with the view that it was a good place to park cash at an 8%+ dividend yield with liquidity and a 15- 25% annual IRR upside. When the stock reached $50+ in early 2020 we took half of our position off the table and took the rest off back at $40 in the spring 2020 as we are positioning our portfolio to have significantly higher upside in the nanocap space as the economy and the small cap markets recover over the next few years. We may come back to MO in the future as it is a solid dividend yielding investment, but as we mentioned earlier, our strategy does involve off-the-beaten-path companies with an opportunity to get repriced on growth of revenues and earnings and Altria Group’s low growth was not going to get us the returns we seek given the repricing of the value segment of the small cap markets.”
As you can see Artko isn't really bearish on MO and might be buying Altria shares today as the stock's price dipped below $37. Altria shares offer an annualized dividend yield of 9.25%. There were a total of 43 hedge funds with bullish MO positions at the end of June.
Kinder Morgan is another fallen angel that is yielding nearly 9%. KMI shares were trading above $22 and nearly cut in half in less than 9 months. We think KMI shares look very cheap, but it may become even cheaper in the next few weeks as the coronavirus pandemic artificially will reduce the demand for travel voluntarily and involuntarily as the number of new daily COVID-19 cases breaks new records. However, we believe KMI is likely to survive the pandemic will deliver large returns. During the first 9 months of 2020 the company was able to generate $1.47 per share of distributable cash flow (DCF). Since its quarterly dividend is $0.2625, its DCF covers 187% of its dividend payments. There are a lot of energy companies that were forced to cut their dividend payments whereas KMI was able to boost it by 5% even though this is less than what it foresaw earlier in the year.
Kinder Morgan was in the portfolios of 50 hedge funds at the end of June, an increase of from March. Billionaire value investor David Abrams is one of the top 3 hedge fund holders of this high dividend stock.
Click to continue reading and see thetop 5 high dividend stocks to buy. Disclosure: 10 Best High Dividend Stocks To Buy Now is originally published at Insider Monkey.
