Savvy investors often look to billionaire portfolios for ideas for high-quality dividend stocks. Ray Dalio, founder of Bridgewater Associates, has a reputation for spotting promising investments. Despite Dalio retiring in 2022, his influence is still evident in the hedge fund’s recent moves.
In the second quarter of 2024, Bridgewater Associates purchased shares of three Tier 1 dividend stocks: ExxonMobil (NYSE: XOM), Medtronic (NYSE: MDT)And Microsoft (NASDAQ: MSFT)Let’s take a look at each of these stocks to determine whether they deserve a place in your dividend portfolio.
ExxonMobil: An energy giant with an attractive return
ExxonMobil, one of the world’s largest integrated oil and gas companies, has long been a favorite among dividend investors. The company offers an attractive yield of 3.29% with a conservative payout ratio of 44.9%. Over the past decade, ExxonMobil has grown its dividend at a modest 2.66% per year.
The stock’s performance has been mixed, with a 10-year return of 16.5% excluding dividends. However, when reinvested dividends are included, the total return jumps to 80.1%. While impressive, this still lags the S&P 500‘s total return (including dividends) of 231% over the same period. ExxonMobil currently trades at an attractive forward price-to-earnings (P/E) ratio of 12.1.
Upside catalysts for ExxonMobil include responding to shareholder concerns, such as reduced spending, new executive appointments and emissions reduction targets. The company’s shift to liquids pricing and high-value integrated operations could improve cash margins, particularly with new volumes from the Permian Basin and Guyana.
However, ExxonMobil faces significant downside risks. The company’s continued investment in long-lived hydrocarbon projects could result in stranded assets if oil demand peaks and declines sooner than expected. Additionally, ExxonMobil’s relatively low investment in low-carbon businesses compared to peers could pose challenges as it adapts to a changing energy landscape.
Medtronic: A Leading Innovator in Healthcare
Medtronic, a global leader in medical technology, offers an attractive combination of stability and growth potential. The stock yields 3.15%, although its high payout ratio of 93.2% may raise some eyebrows. Over the past decade, Medtronic has grown its dividend at a healthy 6.3% per year.
The company’s stock performance has been modest, with a 10-year return of 38.3% excluding dividends and a total return of 75.7% including reinvested dividends. Like ExxonMobil, this lags the performance of the S&P 500. Medtronic trades on a forward P/E ratio of 16.3.
Medtronic’s upside potential comes from its dominant market position in core cardiac devices, spinal products, insulin pumps and neuromodulators. The company’s robust pipeline, which includes treatments for atrial fibrillation, mitral valve disease and renal denervation for hypertension, could open up new large markets. Medtronic’s innovative approach to applying known technologies to new medical challenges is another strength.
On the other hand, Medtronic faces increasing competition in the insulin pump market, which could threaten its leadership position. The company is also indirectly exposed to Medicare reimbursement rates, and increased payment pressure could hurt profitability. Product recalls, while rare, remain a concern that requires ongoing attention and resources.
Microsoft: A Tech Giant With a Growing Dividend
Microsoft may not be the first name that comes to mind for dividend investors, but the tech giant has been steadily increasing its payout. The stock offers a modest yield of 0.73% with a conservative payout ratio of 24.8%. Over the past decade, Microsoft has grown its dividend by an impressive 7.6% per year.
Where Microsoft really shines is in the performance of its stock. The company has delivered a stunning 810% return over 10 years, excluding dividends, and a total return of 965% with reinvested dividends. That significantly outperforms the S&P 500. Microsoft trades on a premium forward P/E ratio of 30.8, which reflects its high growth expectations.
Microsoft’s upside potential is driven by its strong position in the public cloud market with Azure, which benefits from the evolution to hybrid and public cloud environments. The continued success of Microsoft 365, with customers willing to pay for better security and additional features, is another growth driver. Microsoft’s dominant positions in operating systems and office software serve as cash cows to fuel growth in other areas.
Microsoft does face some risks, however. The momentum to move to subscriptions is slowing, particularly in mature products like Office. The company lacks a meaningful mobile presence, which could be a disadvantage in an increasingly mobile-centric world. Additionally, Microsoft is not the largest player in some of its key growth areas, notably Azure and Dynamics, which could limit its potential in these markets.
Should You Follow Bridgewater’s Lead?
Dalio’s Bridgewater Associates has purchased three different dividend stocks, each of which offers unique characteristics for income-oriented investors. ExxonMobil offers a high yield and a long dividend history, but operates in a rapidly changing energy sector. Medtronic offers stability and growth potential in the fast-growing healthcare sector. Microsoft, while offering a lower yield, has a strong dividend growth record, backed by a powerful technology company.
Are These Dividend Stocks Worth Buying? For income investors, ExxonMobil, Medtronic, and Microsoft are always worth considering. These three companies have shown an unwavering commitment to rewarding shareholders with regular dividend payments and increases in their quarterly cash distributions. They also have strong market positions, ensuring long-term profitability.
If you’re looking for three top dividend stocks to add to your portfolio, these three investments from Bridgewater Associates may be worth a closer look.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $395 calls on Microsoft, long January 2026 $75 calls on Medtronic, short January 2026 $405 calls on Microsoft, and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
Billionaire Ray Dalio’s Former Hedge Fund Is Buying These 3 Best Dividend Stocks. Should You? was originally published by The Motley Fool
