Astute investors frequently examine the portfolios of billionaires for top-notch dividend stock ideas. Ray Dalio, the esteemed founder of Bridgewater Associates, is renowned for his knack in identifying promising investments. Although Dalio retired in 2022, his influential legacy persists in the hedge fund’s recent strategic actions.
In the second quarter of 2024, Bridgewater Associates acquired shares in three premier dividend stocks: ExxonMobil (-0.78%), Medtronic (-1.80%), and Microsoft (-0.12%). Let’s delve into these stocks to assess whether they merit inclusion in your dividend portfolio.
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ExxonMobil: A Leading Energy Entity with an Enticing Yield
ExxonMobil, recognized as one of the largest integrated oil and gas corporations globally, has long been favored by dividend enthusiasts. The company presents an appealing yield of 3.29% coupled with a conservative payout ratio of 44.9%. Over the past decade, ExxonMobil has modestly increased its dividend by 2.66% annually.
The stock’s performance has been somewhat mixed, with a 10-year return of 16.5% when dividends are excluded. However, factoring in reinvested dividends elevates the total return to 80.1%. Although notable, this return still trails the S&P 500’s total gain of 231% (including dividends) over the same timeframe. ExxonMobil is currently valued at an attractive forward price-to-earnings (P/E) ratio of 12.1.
Potential growth drivers for ExxonMobil include its proactive measures addressing shareholder concerns, such as curbing expenditures, appointing new board members, and setting emissions reduction targets. The company’s pivot towards liquids pricing and high-value integrated operations could enhance cash margins, particularly with new production from the Permian Basin and Guyana.
Nevertheless, ExxonMobil encounters significant risks. Continued investment in long-term hydrocarbon projects might result in stranded assets if oil demand peaks and diminishes sooner than anticipated. Additionally, the company’s relatively low investment in low-carbon sectors compared to its peers could pose hurdles in adapting to an evolving energy landscape.
Medtronic: A Leading Innovator in Healthcare
Medtronic, a global frontrunner in medical technology, offers a compelling blend of stability and growth potential. The stock provides a yield of 3.15%, although its high payout ratio of 93.2% might raise some concerns. Over the past decade, Medtronic has grown its dividend at a robust rate of 6.3% annually.
The company’s stock performance has been moderate, with a 10-year return of 38.3% excluding dividends and a total return of 75.7% including reinvested dividends. Similar to ExxonMobil, this performance lags behind the S&P 500. Medtronic is trading at a forward P/E ratio of 16.3.
Medtronic’s growth potential is driven by its dominant market position in core heart devices, spinal products, insulin pumps, and neuromodulators. The company’s strong pipeline, including treatments for atrial fibrillation, mitral valve disease, and renal denervation for hypertension, could unlock new extensive markets. Medtronic’s innovative application of existing technologies to new medical challenges is another major strength.
However, Medtronic faces rising competition in the insulin pump market, which could threaten its market leadership. The company is also indirectly affected by Medicare reimbursement rates, and growing pressures on payments could impact profitability. Product recalls, although infrequent, remain a concern requiring ongoing vigilance and resources.
Microsoft: A Tech Behemoth with a Rising Dividend
Microsoft may not immediately come to mind for dividend seekers, but the tech giant has consistently increased 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 at an impressive annual rate of 7.6%.
Microsoft’s stock performance is where it truly stands out. The company has achieved an astonishing 10-year return of 810% excluding dividends, and a total return of 965% when dividends are reinvested. This performance significantly outpaces the S&P 500. Microsoft trades at a premium forward P/E ratio of 30.8, reflecting high growth expectations.
Microsoft’s growth potential is fueled by its strong foothold in the public cloud market with Azure, benefiting from the shift towards hybrid and public cloud environments. The sustained success of Microsoft 365, with customers willing to invest in enhanced security and additional features, is another growth driver. Microsoft’s commanding positions in operating systems and office software provide cash flow to support growth in other areas.
However, Microsoft does face certain risks. The transition to subscriptions is slowing, particularly for mature products like Office. The company also lacks a substantial presence in the mobile sector, which could be a disadvantage in a mobile-first world. Furthermore, Microsoft is not the leading player in some key growth areas, notably Azure and Dynamics, which might limit its potential in these markets.
Should You Emulate Bridgewater’s Strategy?
Dalio’s Bridgewater Associates has been acquiring three diverse dividend stocks, each offering unique benefits for income-focused investors. ExxonMobil provides a robust yield and a long-standing dividend history, yet it operates within a swiftly changing energy sector. Medtronic offers stability and growth prospects within the burgeoning healthcare industry. Microsoft, while offering a lower yield, boasts a strong dividend growth record supported by its formidable tech business.
Are these dividend stocks worth buying? For income investors, ExxonMobil, Medtronic, and Microsoft remain attractive options. Each of these companies has demonstrated a steadfast commitment to rewarding shareholders with regular dividend payments and increases in their quarterly cash distributions. They also maintain entrenched market positions, ensuring long-term profitability.
Thus, if you’re seeking a trio of premier dividend stocks to incorporate into your portfolio, these three holdings by Bridgewater Associates might warrant closer examination.
