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Ken Heebner’s Capital Growth Management’s Portfolio: 10 Dividend Stock Picks

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In this article, we discuss the dividend stocks in Ken Heebner’s portfolio. You can skip our detailed analysis of Capital Growth Management’s past performance and Heebner’s investment strategy, and go directly to read Ken Heebner’s Capital Growth Management’s Portfolio: 5 Dividend Stock Picks

Ken Heebner founded Capital Growth Management, a Boston-based investment management firm.

According to Heebner, his investment strategy does not always align with the ongoing situation of the market. He focuses on the overlooked economic trends that have an effect on the entire sector and then he places bets on the companies that he thinks will perform better in this situation. Following this strategy, his hedge fund managed to generate positive returns since its inception. The hedge fund started performing remarkably post the dot-com bubble in the early 2000s. Heebner invested his money in stocks whose prices were expected to plummet. In the decade to come, his firm’s main fund, Focus, delivered a cumulative return of 290.2%, compared with a 16.4% gain of the S&P 500 during the same period. According to his interview published in CNN, Focus returned 30.5% annually from 2003 to 2006. Moreover, from 1999 to 2007, the fund delivered an annualized return of 25%.

As of Q1 2022, Capital Growth Management holds a 13F portfolio value of over $1.08 billion, almost the same as in the previous quarter. The hedge fund’s focus remained on the basic material and finance sectors as they represented the major portion of Heebner’s portfolio. Some of the hedge fund’s major holdings for the quarter include Bank of America Corporation (NYSE:BAC), Wells Fargo & Company (NYSE:WFC), and MetLife, Inc. (NYSE:MET).

Our Methodology: 

In this article, we discuss the best dividend stocks in Ken Heebner’s portfolio. For this list, we took data from Capital Growth Management’s 13F portfolio, as of Q1 2022.

Ken Heebner's Capital Growth Management's Portfolio: 10 Dividend Stock Picks

Ken Heebner’s Capital Growth Management’s Portfolio: 10 Dividend Stock Picks

10. Ovintiv Inc. (NYSE:OVV)

Number of Hedge Fund Holders: 44

 

Capital Growth Management’s Stake Value: $5,407,000

 

Dividend Yield as of May 24: 2.03%

Ovintiv Inc. (NYSE:OVV) is an American natural gas company that specializes in hydrocarbon exploration and production. The company is the largest natural gas producer in Canada.

In May, Ovintiv Inc. (NYSE:OVV) hiked its quarterly dividend by 25% to $0.25 per share. The stock’s dividend yield was recorded at 2.03% on May 24. In Q1 2022, Ovintiv Inc. (NYSE:OVV) returned $52 million to shareholders through dividends. As utility companies are well-positioned to benefit from strong commodity prices, in April, Truist lifted its price target on the stock to $80, with a Buy rating on the shares.

Ovintiv Inc. (NYSE:OVV) is one of the latest holdings of Capital Growth Management. The hedge fund purchased 100,000 shares in the company, valued at over $5.4 million, which accounted for 0.49% of Ken Heebner’s portfolio. Along with OVV, Bank of America Corporation (NYSE:BAC), Wells Fargo & Company (NYSE:WFC), and MetLife, Inc. (NYSE:MET) are some other important holdings of Capital Growth.

As per Insider Monkey’s Q1 2022 database, 44 hedge funds held stakes in Ovintiv Inc. (NYSE:OVV), the same as in the previous quarter. The total value of these stakes is over $2 billion, up significantly from $1.07 billion worth of stakes held by hedge funds in Q4 2021. With shares worth over $263.3 million, Marshall Wace LLP held the largest position in the Colorado-based company in Q1 2022.

Miller Value Partners mentioned Ovintiv Inc. (NYSE:OVV) in its Q4 2021 investor letter. Here is what the firm has to say:

“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.

We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.

One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.

OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”

Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”

9. Wells Fargo & Company (NYSE:WFC)

Number of Hedge Fund Holders: 93

 

Capital Growth Management’s Stake Value: $14,538,000

 

Dividend Yield as of May 24: 2.30%

Wells Fargo & Company (NYSE:WFC) is an American multinational financial services company. In its Q1 2022 earnings, the company posted a GAAP EPS of $0.88, which beat analysts’ estimates by $0.07. However, the company’s revenue of $17.5 billion did not meet the market expectations and missed the estimates by $230 million.

According to Insider Monkey’s database, 93 hedge funds reported owning stakes in Wells Fargo & Company (NYSE:WFC) in Q1 2022, showing a slight decline from 94 hedge funds holding stakes in the company in the previous quarter. These 93 hedge funds hold a collective stake worth roughly $7 billion in the California-based company.

In January this year, Wells Fargo & Company (NYSE:WFC) announced a quarterly dividend of $0.25 per share, having raised it by 25%. The stock’s dividend yield, as of May 24, stood at 2.30%. In its April investors’ note, Barclays appreciated that Wells Fargo & Company (NYSE:WFC) has presented a positive outlook on its net interest income and loan growth, without changing its expense forecast. In light of this, the firm lifted its price target on the stock to $64, with an Overweight rating on the shares.

Capital Growth Management pulled off its stakes from Wells Fargo & Company (NYSE:WFC) in 2015 and reinitiated its position in the company during the fourth quarter of 2021.  The hedge fund increased its position in the company by 50% during the first quarter of 2022, equaling shares worth over $14.5 million. Wells Fargo & Company (NYSE:WFC) accounted for 1.34% of Ken Heebner’s portfolio.

8. Bank of America Corporation (NYSE:BAC)

Number of Hedge Fund Holders: 99

 

Capital Growth Management’s Stake Value: $31,739,000

 

Dividend Yield as of May 24: 2.37%

Bank of America Corporation (NYSE:BAC) announced a 13% year-over-year growth in its credit and debit card spending in April. The company also reported an 8% growth in its overall transactions from a year ago.

Appreciating the solid Q1 results of Bank of America Corporation (NYSE:BAC), in April, Citigroup lifted its price target on the stock to $47, while maintaining a Buy rating on the shares. In 2021, Bank of America Corporation (NYSE:BAC) announced a quarterly dividend of $0.21 per share, after raising it by 17% in 2021. The company maintains an 8-year track record of consistent dividend growth, coming through as one of the best dividend stocks in Ken Weebner’s portfolio. As of May 24, the stock’s dividend yield was recorded at 2.30%.

Capital Growth Management made the first investment in Bank of America Corporation (NYSE:BAC) during the fourth quarter of 2011, purchasing shares worth over $123 million. During Q1 2022, the hedge fund increased its stake in the company by 285%, which represented 2.92% of its 13F portfolio.

The number of hedge funds tracked by Insider Monkey holding stakes in Bank of America Corporation (NYSE:BAC) increased to 99 in Q1 2022, compared with 84 in the previous quarter. These stakes hold a consolidated value of over $45.4 billion.

Miller Value Partners mentioned Bank of America Corporation (NYSE:BAC) in its Q1 2022 investor letter. Here is what the firm has to say:

“There are many times when volatility and beta give false signals. Banks outperformed in the post-tech bubble bear market of the early 2000s. At the market peak prior to the financial crisis (when risk was the highest in those names!), Bank of America (NYSE:BAC) had a 0.9x beta (based on the trailing 5 years) suggesting its “risk” was below the market’s. Wrong! It massively underperformed in the financial crisis. Realized beta over the 5 years from the pre-crisis’ 2006 peak measured 2.3x.

A much better indicator of actual risk, both before and after the financial crisis, was the quality of the balance sheet and risk-taking appetite. Beta is backwards looking and non-stationary. Relying on it underestimated risk going into the financial crisis and overestimated coming out of it (its beta has continued to fall over the past decade).

We care greatly about risk. We spend a significant amount of time thinking about the risks to our investments. We measure risk as permanent impairment of capital, which means the prices and values don’t bounce back. Business fundamentals determine risk.”

7. Mid-America Apartment Communities, Inc. (NYSE:MAA)

Number of Hedge Fund Holders: 32

 

Capital Growth Management’s Stake Value: $23,040,000

 

Dividend Yield as of May 24: 2.82%

Mid-America Apartment Communities, Inc. (NYSE:MAA) is an American real estate investment trust company that owns over 300 apartment communities containing over 100,000 apartment units.

In April, multifamily rents presented a 15% year-over-year growth, which bodes well for REITs. In view of this, in May, Scotiabank set a $226 price target on Mid-America Apartment Communities, Inc. (NYSE:MAA), with an Outperform rating on the shares. The analyst noted that the sector is poised to post same-store and FFO per share growth in the coming quarters, despite recession fears.

Capital Growth Management increased its position in Mid-America Apartment Communities, Inc. (NYSE:MAA) by 175% during the first quarter of 2022. The hedge fund held shares worth over $23 million in the company, which made up 2.12% of  Ken Heebner’s portfolio. In May, Mid-America Apartment Communities, Inc. (NYSE:MAA) announced a 15% increase in its quarterly dividend to $1.25 per share. The stock’s dividend yield was recoded at 2.82% on May 24.

By the end of March 2022, 32 hedge funds held stakes in Mid-America Apartment Communities, Inc. (NYSE:MAA), up significantly from 18 in the previous quarter. These stakes hold a collective value of over $610.7 million. Among these hedge funds, Balyasny Asset Management held the largest stake in the Tennessee-based company in Q1 2022, worth over $134.2 million.

6. Essex Property Trust, Inc. (NYSE:ESS)

Number of Hedge Fund Holders: 26

 

Capital Growth Management’s Stake Value: $23,040,000

 

Dividend Yield as of May 24: 2.82%

Essex Property Trust, Inc. (NYSE:ESS) is an American real estate investment trust that mainly invests in apartments. At the end of Q1 2022, Capital Growth Management held shares worth over $20.7 million in the company, which accounted for 1.91% of Ken Heebner’s portfolio.

In February, Essex Property Trust, Inc. (NYSE:ESS) announced a 5% hike in its quarterly dividend to $2.20 per share. This marked the company’s 28th consecutive year of dividend increase. As of May 24, the stock’s dividend yield stood at 3.10%.

In May, Goldman Sachs appreciated the operating model of Essex Property Trust, Inc. (NYSE:ESS) which would help the company in cost control during inflation. On account of this, the firm upgraded the stock to Buy from Sell, with a $338 price target.

By the end of Q1 2022, 26 hedge funds in Insider Monkey’s database held stakes in Essex Property Trust, Inc. (NYSE:ESS), valued at over $175.4 million. In the previous quarter, 27 hedge funds held stakes in the company, worth over $190.2 million.

Like ESS, Bank of America Corporation (NYSE:BAC), Wells Fargo & Company (NYSE:WFC), and MetLife, Inc. (NYSE:MET) are also popular among income investors due to their regular dividends.

 

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Disclosure. None. Ken Heebner’s Capital Growth Management’s Portfolio: 10 Dividend Stock Picks is originally published on Insider Monkey.

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