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In this article we will take a look at the 10 best dividend stocks according to billionaire Ray Dalio. You can skip our detailed analysis of Dalio's history, investment philosophy, and hedge fund performance, and go directly to the 5 Best Dividend Stocks According to Billionaire Ray Dalio.
Raymond Thomas Dalio, popularly known as Ray Dalio, runs Bridgewater Associates, one of the largest hedge funds in the world. Dalio worked at Dominick & Dominick LLC and the New York Stock Exchange before founding Bridgewater Associates, the fund through which he earned his billionaire status.
He earned a $2 billion compensation for his role in Bridgewater’s success in 2018, during which the fund registered a 14.6% return on investments. The hedge fund manages a $150 billion portfolio and has so far earned more than $46.5 billion since its inception. However, sustaining profits hasn't been easy for Dalio amid the increasing financial volatility. For example, Bridgewater lost $12.1 billion in 2020, which is normal considering the economic downturn. But Dalio's hedge fund has started to see a recovery. The fund’s current market value is $11.56 billion, which is higher than the $8.315 billion market value in the previous year. Its Q4 portfolio consists of 169 newly purchased stocks, 233 stocks in which it has added stake, while it sold 74 stocks and reduced its stake in 122 stocks. Bridgewater registered 8.21% growth in Q4 2020 and 16.03% growth in the last four quarters.
Ray Dalio's Portfolio and Investment Updates
Dalio, 71, likes to diversify his portfolio. His Q4'2020 portfolio shows that he has stakes in notable technology companies, as well as small companies that are working on innovative products. This amalgamation of growth and value stocks help Bridgewater offset losses during times of volatility. Some notable stakes of Dalio's hedge fund include Walmart Inc (NYSE: WMT), Johnson & Johnson (NYSE: JNJ), Starbucks Corporation (NASDAQ: SBUX) and McDonald's Corp (NYSE: MCD).
In the fourth quarter of 2020, Bridgewater increased its stake in Walmart Inc (NYSE: WMT) by 120%, ending the period with 3.1 million shares of the company, worth $443.78 million. Walmart Inc (NYSE: WMT) stock recently received positive comments from Bank of America, which likes the stock because of the company’s digital investments. BofA maintained a Buy rating on Walmart Inc (NYSE: WMT) and said that WMT will benefit from the rise in spending boosted by the stimulus support.
The bank noted that Walmart Inc (WMT)'s strong comp sales and “price discipline” position the company for a return to a more “normalized/price-sensitive” environment.
Ray Dalio has a $231 million stake in Johnson & Johnson (NYSE: JNJ), which has been in the news lately for its COVID-19 vaccine. Reuters in April reported that The Centers for Disease Control and Prevention was investigating two more cases of rare blood clots in people who received JNJ vaccine. In a positive development for Johnson & Johnson (NYSE: JNJ), NYC Mayor Bill de Blasio on Thursday said the city plans to install COVID-19 mobile vaccination spots on tourist attractions. These spots will offer vaccination jabs of Johnson & Johnson.
Dalio’s stake in Starbucks Corporation (NASDAQ: SBUX) is also proving to be profitable. The stock is rising after the company posted a strong quarter. BTIG analyst Peter Saleh, who has a Buy rating on the stock with a price target of $130, recently said that while Starbucks Corporation (NASDAQ: SBUX) comp sales in China missed expectations, Starbucks’ domestic sales continued to improve. The analyst expects Starbucks Corporation (NASDAQ: SBUX) to top EPS expectations amid an economic recovery in the US.
Cowen also named Starbucks Corporation (NASDAQ: SBUX) its top pick for restaurant reopening. The firm has an Outperform rating for Starbucks with a price target of $126.
Bridgewater also increased its stake in McDonald's Corp (NYSE: MCD) by 120% in the fourth quarter. The stock is currently making waves after the company beat Q1 estimates and returned to pre-pandemic level of global sales. Global comp sales jumped by 7.5% during the quarter, crushing the estimates of a 4.9% growth. Comp sales in the US increased by 13.6% versus a 10.2% estimate.
McDonald's Corp (NYSE: MCD) expects systemwide sales outlook for 2021 to remain in low double digits to the mid-teens.
What do companies like Canadian Natural Resources Limited (NYSE: CNQ), and TFS Financial Corporation (NASDAQ: TFSL) have in common? They are in Ray Dalio’s list of the top ten best dividend stocks. Canadian Natural Resources was added to the fund's portfolio in the last quarter. Canadian Natural Resources Limited recently announced plans for cut carbon emissions. The stock has gained 102% in the last 12 months.
TFS Financial was also added to the portfolio by Bridgewater Associates in Q4 2020. In February 2021, TFS Financial Corporation (NASDAQ: TFSL) declared a quarterly dividend of $0.28 per share while its current annual dividend is $1.12 per share.
Dalio is an exception in an industry that is reeling from losses. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let's now take a look at the 10 best dividend stocks according to billionaire Ray Dalio. We will use Bridgewater's Q4 portfolio for this analysis.
Best Dividend Stocks According to Billionaire Ray Dalio
Value: $1,011,000 Percent of Ray Dalio’s 13F Portfolio: 0.001% No. of Hedge Fund Holders: 15
Ares Capital Corporation (NASDAQ: ARCC) is a specialty finance firm that offers investment services such as direct loans to private companies in the U.S.
The company's latest quarterly earnings report revealed that it made $390 million in investment income in Q1 2021, representing a 5.7% YoY gain. It was also notably higher than the $385.9 million consensus estimate. Its core EPS in Q1 was 43 cents which outperformed the 42 cents consensus estimate, although a decline compared to the 54 cents EPS in Q4 2020. Its GAAP EPS was $0.87, which was 41 cents higher than the consensus estimate.
The value of Ares Capital Corporation investment portfolio dropped to $15.43 billion as of March 31, 2021, compared to $15.52 billion as of December 31, 2020. The company’s new investment commitment add up to $1.8 billion. It also announced a Q1 2021 dividend of $0.40 per share, affirming its position as one of the best dividend stocks. Ares Capital plans to acquire Landmark Partners, LLC through a definitive deal.
Value: $833,000 Percent of Ray Dalio’s 13F Portfolio: 0.001% No. of Hedge Fund Holders: 29
People's United Financial, Inc. (NASDAQ: PBCT) is the holding company that owns the U.S-based bank called People's United Bank. It has branches across multiple states, including New Hampshire, Vermont, Maine, Massachusetts, New York, and Connecticut.
The bank generated $488.1 million revenue in Q1 2021, a 7.5% YOY decline, and it also missed the revenue consensus estimate by $5.78 million. PBCT’s GAAP EPS in Q1 was $0.33, which was slightly below the consensus estimate by $0.01, while its Non-GAAP EPS of $0.37 outperformed estimates by $0.03. The company declared a $0.1825 per share dividend for the quarter, a notable gain from the previous $0.1800 per share dividend. The stock ranks 9th in the list of best dividend stocks to buy based on Ray Dalio's Q4 portfolio.
People's United Financial, Inc. operating income in Q1 2021 grew by 6% to $156.5 million. Its operating EPS for the same period was 37 cents which was slightly higher than 35 cents in the previous quarter. The bank’s net income dropped to $94.6 million in Q1 2021 from $178.2 million in Q4 2020. PBCT announced in February that it signed an all-stock merger deal with M&T Bank.
8. Xerox Holdings Corporation (NYSE: XRX)
Value: $463,000 Percent of Ray Dalio’s 13F Portfolio: 0.001% No. of Hedge Fund Holders: 27
Xerox Holdings Corporation (NYSE: XRX) is a U.S-based company that sells digital and print products in 160 countries. The company recently announced its Q1 2021 earnings, revealing that it generated $1.71 billion in revenue in the first three months of the year, surpassing the consensus estimate by $120 million. Equipment sales amounted to $1.71 billion, which represents an 8.1% decrease YOY.
Xerox Holdings Corporation reported $1.3 billion worth of post-sale revenue in Q1, which was down by 13% compared to the corresponding quarter in 2020. Its Non-GAAP EPS in Q1 was $0.22, which missed the consensus estimate by 7 cents. Its GAAP EPS was $0.18, which outperformed the consensus estimate by 8 cents.
Xerox ranks 8th in the list of best dividend stocks to buy according to Ray Dalio.
Value: $2,903,000 Percent of Ray Dalio’s 13F Portfolio: 0.02% No. of Hedge Fund Holders: 47
Dow Inc. (NYSE: DOW) is a chemical company that was spun off from DowDupont in 2019. Argus Research recently upgraded the stock citing an increased demand for commodity chemicals in China and North America and better pricing in those markets. Bill Selesky, an Argus analyst, stated that the company's profile has also been improving courtesy of reduced capital expenditure, healthy cash flow, and low-cost structure.
Dow Inc. revenue and earnings in Q1 performed better than expected thanks to price gains in all of its operating segments. Its GAAP earnings in Q1 2021 rallied to $1.01 billion or $1.32 per share, a significant improvement from the $258 million, or $0.32 per share reported in Q1 2019. Dow’s Q1 Non-GAAP EPS in Q1 was $1.36, which outperformed the consensus estimate by $0.21. Its GAAP EPS was $1.32, surpassing the consensus estimate by $0.26.
The quarterly revenue was $11.88 billion, which was 21.6% higher YOY and a whole $750 million more than the consensus estimate. Dow’s net sales were up 22% to $11.9 billion compared to its performance in Q1 2020. Dow’s impressive performance makes it one of the best dividend stocks to buy.
Value: $2,948,000 Percent of Ray Dalio’s 13F Portfolio: 0.02% No. of Hedge Fund Holders: 72
Gilead Sciences, Inc. (NASDAQ: GILD) is a California-based biopharma company that makes antiviral drugs for various diseases such as influenza, hepatitis B, hepatitis C, and HIV. The company has outperformed EPS consensus estimates 75% of the time and revenue estimates 63% of the time in the last two years. The stock ranks 6th in the list of best dividend stocks to buy according to Ray Dalio.
Apart from various growth catalysts, the company is a decent dividend stock. It recently declared a quarterly dividend of $0.71 per share.
Bernstein analyst Ronny Gal in April upgraded Gilead stock to Outperform from Market Perform with a price target of $80.
Gal likes the company's HIV franchise and sees sustainability in it amid the company’s partnership with Merck and positive results of lenacapivir in phase 2/3.
Like Walmart Inc (NYSE: WMT), Johnson & Johnson (NYSE: JNJ), Starbucks Corporation (NASDAQ: SBUX) and McDonald's Corp (NYSE: MCD), Gilead is one of the best stocks to buy based on Ray Dalio's portfolio.
“In the healthcare sector, we sold our position in Gilead (NASDAQ: GILD) as there are no near or medium-term growth drivers for the company. Its popular HIV drug, Truvada, is going off patent this year. Additionally, UnitedHealth Group said it would not cover Gilead’s other HIV drug, Descovy. Lastly, the multiple acquisitions that Gilead has made recently are not ready for prime time, and it will likely be two years or more before any of Gilead’s new drugs have a meaningful impact on revenue.”
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Disclosure: None. 10 Best Dividend Stocks According to Billionaire Ray Dalio is originally published on Insider Monkey.