Who is the greatest living hedge fund manager? A good case can be made for Ken Griffin. Citadel, which he founded in 1990, is one of the largest and most successful hedge funds. Griffin’s net worth is almost $38 billion, enough to put him 42nd among the richest people in the world.
The billionaire investor doesn’t need any income from his stocks. However, that won’t stop him from hand-buying these three dividend stocks in the first quarter of 2024.
1. Hess
The end of 2023 is Hes (NYSE: HES) was not near the top of Citadel’s largest interests. The oil stock is now the hedge fund’s third-largest position after Griffin increased his stake in Hess by nearly 18x.
Hess doesn’t offer the most impressive dividend among its peers, with a dividend yield of less than 1.2%. However, the company deserves a pat on the back for increasing its dividend payout by a whopping 75% since 2022.
Griffin went against the Wall Street consensus by purchasing additional shares of Hess. Of the 21 analysts surveyed by LSEG in May, 11 recommended holding the stock, with one rating it as ‘underperform’.
The Citadel’s founder could bet on that, though ChevronThe impending acquisition of Hess continues. If the deal closes, Hess shareholders will receive a 13% premium on the current share price.
2. Bank of America
Griffin’s hedge fund owns several financial stocks. No one claims a higher place in Citadel’s portfolio than bank of America (NYSE: BAC). Griffin bought more than 22.4 million shares of BofA in the first quarter – a 389% increase from the previous quarter.
Bank of America has one of the most attractive dividend programs in the banking industry. The company has increased its dividend in most years, with the COVID-19 pandemic causing a temporary pause in 2020. Over the past five years, BofA has increased its dividend by as much as 60%. The future dividend yield is currently above 2.4%.
The stock has recovered from the 2023 banking crisis. However, it is still almost 20% below the all-time high of early 2022.
Despite this solid recovery, Bank of America appears attractively valued. The shares trade at a price-to-earnings ratio of 12.2. The average financial sector profit margin in the S&P 500 is 15.6.
3. Merck
Griffin appears to be a fan of big pharmaceutical stocks, several of which are in Citadel’s top 50. Merck (NYSE:MRK) may be his favorite in the group. It is Citadel’s eighth position after the hedge fund increased its stake by almost 20% in the first quarter.
Merck has a good track record of dividend increases, with the payout increasing annually since 2011 and 40% over the past five years. The major drugmaker’s future dividend yield is almost 2.4%.
The stock is doing well so far in 2024, up about 20%. The company received new US and European approvals for the blockbuster drug Keytruda. It announced positive results from a late-stage study of the pneumococcal conjugate vaccine V116. Merck also completed its acquisition of Harpoon Therapeutics in March.
Should you also buy these dividend stocks?
No investor should buy a stock just because a successful hedge fund manager did so. Your goals and risk tolerance will likely be different than those of Griffin or other billionaire investors. However, I think two of the dividend stocks that Griffin bought in the first quarter are pretty good choices for some investors right now.
I’ll first discuss the one outlier: Merck. My concern with Merck is that it will face a major patent cliff in the coming years. The biggest concern lies with Keytruda, whose US patent expires in 2028. Cancer therapy generated 44% of Merck’s total sales in the first quarter.
Hess could be an easy win if the Chevron acquisition is completed. Granted, this deal could be derailed by regulators. But even if that happens, Hess could still deliver solid long-term returns if predictions of an impending oil shortage come true.
Potential rate cuts later this year could pose some headwinds for Bank of America, but I don’t think it will be too problematic. BofA is, in my opinion, one of the best run banks out there. The company is a technological innovator. I like the long-term prospects – and the dividend.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has positions in Bank of America and Chevron. The Motley Fool holds positions in and recommends Bank of America, Chevron and Merck. The Motley Fool has a disclosure policy.
Billionaire Ken Griffin is buying these dividend stocks by hand. Would you? was originally published by The Motley Fool
