4 Dividend Stocks Top Managers Are Buying

Susan Dziubinski: Each quarter, we take a look at the recent transactions of some of the top money managers around, who we call our Ultimate Stock-Pickers. Why? Because the portfolios of well-respected money managers can be fertile hunting ground for new stock ideas to investigate further.

Today we’re looking at the four most widely purchased dividend stocks among our Ultimate Stock-Pickers last quarter.

4 Dividend Stocks Top Managers Are Buying

1. Pfizer PFE
2. Pioneer Natural Resources PXD
3. Philip Morris International PM
4. Fidelity National Information Services FIS

Four Ultimate Stock-Pickers bought Pfizer stock last quarter. Pfizer is one of the world’s largest drugmakers, with annual sales close to $50 billion. Pfizer has become a household name with its COVID-19 vaccine and treatment. We think Pfizer has significant competitive advantages, thanks to its broad portfolio of patent-protected drugs and to its ability to develop new drugs rapidly, and we therefore assign the company a wide economic moat rating. The company is facing some major patent losses in the next five years, with cardiovascular drug Eliquis and oncology drug Ibrance, among others. But we think the firm will be able to offset those patent losses, and we assign Pfizer stock a $48 fair value estimate.

Three of our top managers picked up Pioneer Natural Resources stock. Pioneer is an independent oil and gas exploration and production company. Pioneer has an exceptional balance sheet and has been a “pioneer” in offering a variable dividend. Variable dividends have grown in popularity with E&P companies, given that their cash flows are tied to volatile commodity prices. By paying a variable rather than a fixed-rate dividend, these companies are able to return more cash to shareholders than they might otherwise. We recently lowered our fair value estimate on Pioneer’s stock, as lower commodity prices will reduce the firm’s free cash flow going forward. We think Pioneer Natural Resources stock is worth $181 per share.

Three managers also purchased Philip Morris International stock last quarter. The tobacco giant has carved out a wide economic moat thanks to its cost advantages and the success of premium price brands, including Marlboro and Parliament. The company’s plan is to completely replace cigarettes with less harmful alternatives as soon as possible, seeking to generate more than half of its revenue from noncombustibles by 2025. We view this goal as ambitious, but if things go according to plan, Philip Morris could be the first Big Tobacco firm since the 1990s to diversify half of its cash flow away from cigarettes. We think shares are worth $103 apiece.

And finally, Fidelity National Information Services stock was purchased by three of our Ultimate Stock-Pickers. While technically a tech company, Fidelity National provides services to the banking industry and, given the stickiness of the company’s core business, we’ve given it a narrow economic moat rating. Fidelity National is spinning off its Worldpay business, which will give the company a lower growth profile but, on the plus side, will help it become a highly profitable cash cow. In fact, management says it expects to make capital return a priority. While the company may be in flux, we think its stock is significantly undervalued. We assign Fidelity National Information Services stock an $83 fair value estimate.

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Watch “2 Stocks Top Managers Are Selling” for more from this series.

Morningstar directors Damien Conover, Philip Gorham, and David Meats, Morningstar DividendInvestor editor David Harrell, and senior analyst Brett Horn provided the research behind this segment.