By Dividend stocks aren’t just for income investors. Want proof? Just look at Ken Griffin’s purchases for his Citadel hedge fund in the second quarter of 2024.
Griffin’s net worth is $43 billion. It’s fair to say he doesn’t need dividend income and is by no means an income investor. However, the billionaire loaded up on at least one high-yield dividend stock in Q2.
A big buy of a big pharma
Griffin went on a major buying spree in Q2. He increased Citadel’s stake by 20% or more for 35 of the hedge fund’s top-50 holdings.
Most of those purchases weren’t of high-yield dividend stocks. One notable exception, however, was Griffin’s big buy of a big pharma — Pfizer (NYSE: PFE). The drugmaker’s forward-dividend yield is a lofty 5.8%.
In Q2, Griffin bought 7.89 million additional shares of Pfizer. This increased Citadel’s stake by 63%. Pfizer now ranks as the hedge fund’s 14th-largest position and 12th-largest stock holding (the top-two overall holdings are exchange-traded funds, or ETFs).
Griffin has a long history with Pfizer. He first initiated a position in the pharma stock in 2013’s Q2. Through the years, the billionaire hedge fund manager has increased and decreased Citadel’s stake in Pfizer. Recently, though, he appears to be all aboard the big drugmaker’s bandwagon. Griffin has increased his position in Pfizer for six consecutive quarters.
Why does Griffin like Pfizer?
As far as I know, Griffin hasn’t commented publicly about why he has been aggressively adding to Citadel’s position in Pfizer. However, we can make a few educated guesses.
I’m sure he likes the company’s juicy dividend. To be sure, Griffin isn’t an income investor. But he no doubt recognizes that a dividend yield of nearly 6% gives Pfizer a nice head start on delivering market-beating total returns.
Valuation could be another top consideration for the billionaire investor. Pfizer’s share price remains roughly 50% below its peak set in late 2021. The stock’s forward price-to-earnings ratio is 10.3, much lower than the S&P 500 healthcare sector’s forward-earnings multiple of 19.6.
Griffin is big on diversification. Citadel’s portfolio includes a whopping 5,816 holdings. The addition to the position in Pfizer could have been in part to increase the hedge fund’s exposure to healthcare and, in particular, the pharmaceutical industry.
Ultimately, though, Griffin invests in specific stocks because he thinks they’ll make money. I suspect he likes Pfizer’s long-term growth prospects. Griffin is astute enough to understand the challenges the drugmaker faces, including declining sales of its COVID-19 products and a looming patent cliff with several top-selling drugs losing patent exclusivity. However, he also knows the efforts Pfizer has made to overcome these challenges, such as investing heavily in research and development and making acquisitions to bolster its pipeline.
Should you buy Pfizer stock, too?
No one should buy or sell a given stock solely to follow in the footsteps of a wealthy famous investor like Ken Griffin. However, the trades of successful investors can often provide good ideas to consider. Should you buy Pfizer stock, too?
Growth investors probably won’t find Pfizer super attractive. Although I think the big pharma company will deliver solid growth over the next few years, it likely won’t be enough to keep up with many tech stocks and other high-growth alternatives.
Highly risk-averse investors might want to remain on the sidelines with Pfizer as well. The drugmaker’s pipeline candidates could fail in clinical testing and cause the stock to drop. That’s less of a problem with a big company like Pfizer that has a deep pipeline, but it’s definitely something to keep in mind.
On the other hand, Pfizer could be a good fit for value investors. As previously mentioned, the stock is relatively cheap. If the company’s new products and late-stage pipeline programs fulfill their potential, Pfizer’s share price could rebound nicely over the rest of the decade.
And there’s one group of investors who should absolutely love Pfizer — income investors. Pfizer’s yield is exceptional. The company appears to be in a strong position to keep the dividends flowing. No, dividend stocks aren’t just for income investors. But a high-yield dividend stock with a long track record of success like Pfizer will usually be a better fit for income investors than any other type of investor.
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Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
Billionaire Ken Griffin Loaded Up on This High-Yield Dividend Stock. Should You? was originally published by The Motley Fool
