Billionaire Ken Fisher’s Favorite Dividend Stocks

Money manager Ken Fisher runs $34 billion hedge fund Fisher Asset Management. Remarkably, Fisher's stock picks have outperformed the S&P 500 by more than 5% on average each year for past 15 years. One type of stocks this billionaire likes is dividends. In fact, the majority of the fund's top 50 holdings pay more than a 2% dividend yield. In today's low interest rate environment, billionaires and savvy investors alike know that dividends are the best way to get more bang for your buck.

Let's first take a look at the importance of dividends. Then we'll examine Fisher's top dividend finds.

How low can they go?
For the past several years, interest rates have left fixed income investors feeling cheated. A lousy 1% one-year CD rate doesn't help investors fill up their gas tanks or stock their fridges. And with no chance of interest rates going up in the near future, it's a good time to stock up on dividend-paying stocks. Even the fiscal cliff's potentially detrimental impact on investment income taxation won't change the fact that investors desperately need income.

Need more reason to consider dividend payers? From 1999 to 2010, stocks with a market cap above $1 billion lost 3%, while stocks with the same market cap that paid at least a 3% dividend gained a wildly impressive 28%. 

Fishing for yield
Take a glance at Fisher Asset Management's highest dividend paying picks based on its most recent 13F SEC filing for Q3 2012.

Company

Dividend Yield

Dividend Payout Ratio

GlaxoSmithKline

5.5%

78%

AT&T (NYSE: T  )

5.4%

230%

Intel (NYSE: INTC  )

4.5%

37%

Royal Bank of Canada

4.4%

67%

Novartis (NYSE: NVS  )

4.2%

70%

Phillip Morris (NYSE: PM  )

4%

63%

Vodafone (NYSE: VOD  )

4%

94%

Sources: Whale Wisdom, Yahoo! Finance.

All of these stocks pay at least a 4% yield. Meanwhile, their dividend payout ratios -- the percentage of company earnings paid out in dividends -- vary greatly. Mature companies like the ones listed above tend to boast a higher payout ratio. But a ratio greater than 100% signals the dividend, at its current rate, is unsustainable. In particular, this raises a red flag for AT&T, but Fisher still holds this stock. For the time being, the other six stocks are in the safety zone.

Let's take a closer look at several of these companies.

AT&T
The telecom industry was once dominated by few players in clearly marked territories. But today, with the dawn of smartphones, tablets, and cable and satellite TV, the boundaries blur. Traditional telecom companies like AT&T now offer services like broadband and video. But even with intense competition from once-unlikely foes, AT&T is still the nation's largest telecom company.

Intel
Most hard drives on the planet are equipped with Intel semiconductors. The chip giant has been criticized for being late to enter the mobile market, but it's gaining traction and closing the gap. With the increased popularity of tablets and smartphones, mobile holds exciting growth prospects for the already-established chip titan. CEO Paul Otellini will step down in May, leaving his successor to carry on with the strategy. Of the stocks listed, Intel boasts the lowest payout ratio, signaling it has a lot of wiggle room to increase its dividend in the future.

Novartis
Big pharma companies like Novartis continually feel pressure from highly competitive generic drug makers, since branded drugs have an expiration date on their patent protection. But Novartis possesses one of the deepest branded drug pipelines, housing blockbuster drugs for the treatment of cancer and multiple sclerosis.

Phillip Morris
Both of big tobacco's major players, Phillip Morris and Altria, are known to pay generous dividends. But, of the two companies, one Fool analyst feels Philip Morris possesses better long-term international growth prospects, specifically the potential to tap into fast-growing emerging markets. Also, Philip Morris is in the midst of a huge share buyback program, signaling the company feels the stock is undervalued.

Vodafone
By selling investments in some wireless companies it didn't control, the cash raised has been used to support Vodafone's dividend and reduce debt. And Verizon Wireless, a joint venture between Vodafone and Verizon, received regulatory approval on a cable deal earlier this year, which should prove lucrative for Vodafone. But buyers beware: The dividend payout ratio is close to 100%, signaling the company is at risk of a dividend cut.

Foolish bottom line
Cloning a billionaire hedge fund manager's portfolio isn't wise. But we can all learn lessons from successful investors. If you're looking for dividends and like what you see in these stocks, do your own research before you dive in headfirst. Thankfully, we at The Motley Fool house plenty of resources to help you do just that.

Intel possesses an undoubtable stranglehold on its PC microprocessor competitors. But that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant. Better yet, you'll continue to receive updates for an entire year. Click here now to learn more.


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