Billionaire Ken Griffin Is Buying These Dividend Stocks Hand Over Fist. Should You? | The Motley Fool (2024)

The billionaire hedge fund manager doesn't need dividend income. But he'll get more of it after his Q1 purchases.

Who's 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 biggest and most successful hedge funds. Griffin's net worth stands at nearly $38 billion, enough to land him the No. 42 spot among the wealthiest people in the world.

The billionaire investor doesn't need income from his stocks. However, that hasn't stopped him from buying these three dividend stocks hand over fist in the first quarter of 2024.

1. Hess

At the end of 2023, Hess (HES 0.74%) wasn't near the top of Citadel's largest holdings. The oil stock is now the hedge fund's third-largest position after Griffin increased its stake in Hess by nearly 18x.

Hess doesn't offer the most impressive dividend among its peers, with a forward dividend yield of under 1.2%. However, the company deserves a pat on the back for boosting its dividend payout by a whopping 75% since 2022.

Griffin went against the consensus on Wall Street in buying additional shares of Hess. Of the 21 analysts surveyed by LSEG in May, 11 recommend holding the stock, with one rating it as an "underperform."

However, the Citadel founder could be betting that Chevron's pending acquisition of Hess sails through. If the deal closes, Hess shareholders will receive a 13% premium to the current share price.

2. Bank of America

Griffin's hedge fund owns several financial stocks. None claims a higher spot in Citadel's portfolio than Bank of America (BAC 1.35%). Griffin bought more than 22.4 million shares of BofA in Q1 -- 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 last five years, BofA has grown its dividend by an impressive 60%. Its forward dividend yield currently tops 2.4%.

The stock has recovered from the banking crisis of 2023. However, it's still close to 20% below the all-time high set in early 2022.

Despite this solid rebound, Bank of America appears to be attractively valued. Its shares trade at a forward price-to-earnings ratio of 12.2. The S&P 500 financial sector's average forward earnings multiple is 15.6.

3. Merck

Griffin appears to be a fan of big pharma stocks, with several in Citadel's top 50 holdings. Merck (MRK -1.22%) is arguably his favorite in the group. It's Citadel's eighth-largest position after the hedge fund increased its stake by nearly 20% in Q1.

Merck boasts a good track record of dividend hikes, increasing its payout annually since 2011 and by 40% over the last five years. The big drugmaker's forward dividend yield stands at nearly 2.4%.

The stock is on a roll so far in 2024, jumping around 20%. The company picked up new U.S. and European approvals for blockbuster drug Keytruda. It announced positive results from a late-stage study of pneumococcal conjugate vaccine V116. Merck also completed its acquisition of Harpoon Therapeutics in March.

Should you buy these dividend stocks too?

No investor should buy a stock solely because a successful hedge fund manager did. Your goals and risk tolerance will likely be different than Griffin's or other billionaire investors'. However, I think two of the dividend stocks Griffin bought in Q1 are pretty good picks for some investors right now.

I'll first address the lone outlier -- Merck. My concern with Merck is that it faces a major patent cliff over the next few years. The biggest worry is with Keytruda, whose U.S. patent expires in 2028. The cancer therapy generated 44% of Merck's total revenue in Q1.

Hess could be an easy win if Chevron's acquisition closes. Granted, this deal could be derailed by regulators. Even if that happens, though, Hess could still deliver solid long-term returns if predictions of a looming oil supply shortage come true.

Potential interest rate cuts later this year could create some headwinds for Bank of America, but I don't think this will be overly problematic. BofA is one of the best-run banks around, in my opinion. The company is a technological innovator. I like its long-term prospects -- and its dividend.

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 has 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 Hand Over Fist. Should You? | The Motley Fool (2024)


Why do some investors prefer high dividend paying stocks? ›

In addition to providing consistent income, many dividend-paying stocks are in defensive sectors that can weather economic downturns with reduced volatility. Dividend-paying companies also have substantial amounts of cash, and therefore, are usually strong companies with good prospects for long-term performance.

How do investors make money on a stock if it doesn t issue a dividend? ›

Companies that offer dividends provide investors with a regular income as the stock price moves up and down in the market. Companies that don't offer dividends are typically reinvesting revenues into the growth of the company itself, which can eventually lead to greater increases in share price and value for investors.

Is there a downside to dividend stocks? ›

Dividend-paying stocks have the potential for income through dividends and capital appreciation, but they come with higher volatility and market risk. The choice between the two depends on your risk tolerance, investment goals, and time horizon.

Is it worth it to buy dividend stocks? ›

Dividend investing can be a great investment strategy. Dividend stocks have historically outperformed the S&P 500 with less volatility. That's because dividend stocks provide two sources of return: regular income from dividend payments and capital appreciation of the stock price. This total return can add up over time.

What to do with stocks that don't pay dividends? ›

Thus, investors who buy stocks that do not pay dividends prefer to see these companies reinvest their earnings to fund other projects. They hope these internal investments will yield higher returns via a rising stock price. Smaller companies are more likely to pursue these strategies.

Why do stocks go down when dividends are paid? ›

It's no different for a company. Money that a company pays to shareholders is money that is no longer part of the asset base of the corporation. This money can no longer be used to reinvest and grow the company. That reduction in the company's "wealth" has to be reflected in a downward adjustment in the stock price.

Why don t stocks pay dividends anymore? ›

Newer companies, or those in the technology space, often opt instead to re-direct profits back into the company for growth and expansion, so they do not pay dividends. Rather, this reinvestment of retained earnings is often reflected in a rising share price and capital gains for investors. Internal Revenue Service.

Why do some investors prefer high dividend paying stocks while other investors prefer stocks that pay low or nonexistent dividends? ›

Answer and Explanation:

High dividend-paying stocks are at low risk as they are paid off at the end of the year. And share prices with capital gain may fluctuate in the near future. Investors having lower risk profile would prefer going for the high dividend-paying stocks.

Why do shareholders want high dividends? ›

Sustainable dividend growth is typically a hallmark of a high quality company with the ability to generate plenty of cash flow. This may well be rewarded by a higher share price as investors rush to gain access to this cash flow and in turn deliver a capital gain to existing shareholders.

Do investors prefer high or low dividend payouts? ›

Investors should always prefer healthy payout ratios over high payout ratios. Very high dividend distributions may be attractive in the short term, but they may not last going forward as discussed above.

What type of investors prefer dividends? ›

Different investor types tend to have a preference for how excess cash flow is returned. For example, investors who desire supplemental income, such as retirees, often prefer to receive dividends. A dividend is a real cash payment, which the investor can then use to spend however they wish.


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