Investing is unique in that anyone has the ability to learn from the best in the business.

Institutional investment managers with more $100 million in assets under management have to disclose their portfolios in 13F filings with the U.S. Securities and Exchange Commission.

Seth Klarman is an example of this. As the Chief Executive Officer and Portfolio Manager of the Baupost Group, he overseas a ~$8 billion portfolio of common stock investments.

This article will analyze Seth Klarman’s top 5 high dividend stocks in detail.

Table of Contents

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Each of Seth Klarman's 5 highest yielding dividend stocks are listed in the table of contents below.  Stocks are listed in order from lowest yield to highest yield.  Each is analyzed in detail in this article.

  • Cardinal Health (CAH)
  • Syngenta (SYT)
  • PBF Energy, Inc. (PBF)
  • Colony NorthStar, Inc. (CLNS)
  • ChipMOS Technologies, Inc. (IMOS)

Seth Klarman's Investing Style

Like Warren Buffett, Seth Klarman is best known as a value investor.

Klarman is the author of the value investing book called Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

Buffett is one of the world’s most renowned investors and manages a ~$150 billion investment portfolio on behalf of his conglomerate Berkshire Hathaway.

You can see Warren Buffett’s top 20 high dividend stocks analyzed here.

The investing styles of Warren Buffett and Seth Klarman are different in many ways. For instance:

  • 43% of Klarman’s portfolio is invested in dividend stocks (compared to 91% for Buffett)
  • Klarman’s top 4 holdings have an average dividend yield of 0.7% (compared to 2.9% for Buffett)
  • 42% of Klarman’s portfolio is held in his top 4 holdings (compared to 57% for Buffettt)

So Klarman's portfolio appears less focused on dividends and places a greater emphasis on diversification. However, Klarman has a few holdings with notably high dividend yields:

  • Warren Buffett’s highest yielding dividend (Verizon) stock pays 4.7%
  • Seth Klarman’s highest yielding stock pays 8.2%

Klarman also manages a much smaller investment portfolio. The market value of Baupost’s holdings as of 12/31/2016 was ~$7.7 billion – which means that Buffett manages nearly 20x as much capital as Klarman does.

This means that Klarman can invest in smaller companies. As measured in dollars, Berkshire Hathaway must purchase a substantial amount of stock to move the needle in its investment portfolio.

This is not the case for Seth Klarman's Baupost Group. Looking through his 13F, Klarman has invested in a number of small cap companies, some with a market capitalization of less than $1 billion.

Moving on, Klarman’s top 5 dividend stocks (sorted by yield) will be analyzed in detail.

#5 - Cardinal Health (CAH)

Dividend Yield: 2.2%

Adjusted Price-to-Earnings Ratio: 15.8

Percent of Seth Klarman’s Portfolio: 0.97%

Through the Baupost Group, Seth Klarman controls 1,030,000 shares of Cardinal Health with a market value of $74.1 million.

Cardinal Health is a healthcare company that distributes healthcare products and supplies. The company has a diverse customer base which includes hospitals, retailers, and other healthcare providers.

Cardinal Health has a competitive advantage that stems from its very strong distribution network. It provides products and services to:

  • 5,000 medical suppliers
  • 20,000 pharmacies
  • More than 70% of hospitals in the United States

This has led to strong financial performance for Cardinal Health’s shareholders, which is outlined below.

Seth Klarman

Source: Cardinal Health At a Glance

Cardinal Health has been very shareholder-friendly in its capital allocation decisions.

Between fiscal year 2011 and fiscal year 2015, the company has spent:

This has not hurt the company’s organic growth, however. Sufficient capital has remained to fund ongoing capital expenditures and growth via acquisitions.

Seth Klarman

Source: Cardinal Health At a Glance

Cardinal Health’s healthy mix of organic growth, growth via acquisitions, and share repurchases has led to robust growth in adjusted earnings-per-share over the medium term.

Between fiscal year 2012 and fiscal year 2016, the company grew its bottom line from $3.21 to $5.24, which is a CAGR of 13.0%.

Seth Klarman

Source: Cardinal Health At a Glance

In fiscal 2016, Cardinal Health reported adjusted earnings-per-share of $5.24. The company is trading at an adjusted price-to-earnings ratio of 15.8 based on the current market value of $82.83.

This is well below the S&P 500’s average price-to-earnings ratio of ~26.

The company also pays a solid dividend.

Cardinal Health is a Dividend Aristocrat – a group of elite companies with 25+ years of consecutive dividend increases.

You can see the list of all 51 Dividend Aristocrats here.

Their dividends have been rising rapidly over the years, nearly doubling between fiscal year 2012 and fiscal year 2016.

Seth Klarman

Source: Cardinal Health At a Glance

The company is currently paying a quarterly dividend of $0.4489 per common share. Annualizing this number to $1.7956 and we note that Cardinal Health yields 2.2% on a forward-looking basis.

Seth Klarman will likely collect this above-average dividend yield for some time to come. Cardinal Health was a new position in the portfolio of the Baupost Group in 4Q2016, and it is entirely possible that Klarman is still accumulating more shares of this healthcare company.

You can read more Cardinal Health analysis on Sure Dividend here.

#4 - Syngenta (SYT)

Dividend Yield: 2.2%

Price-to-Earnings Ratio: 5.2

Percent of Seth Klarman’s Portfolio: 0.77%

Seth Klarman’s hedge fund owns 745,136 shares of Syngenta with a market value of $59.9 million.

Syngenta is a globalized agriculture company that specializes in the production of agricultural chemicals and seeds. The company was created in 2000 with the merger of Novartis Agribusiness and Zeneca Agrochemicals.

The company is divided into two segments for reporting purposes:

  • Crop Protection (78% of 2016 sales)
  • Seeds (22% of 2016 sales)

Syngenta benefits from a high degree of geographic diversification. The company operates in four geographic segments:

  • North America
  • Latin America
  • Europe, Africa, and Middle East (EAME)
  • Asia Pacific

Trends and sales growth in each of these regions for fiscal year 2016 can be seen in the following diagram.

Seth Klarman

Source: Syngenta 2017 Analyst Presentation, slide 4

Recently, Syngenta’s business has been under pressure. There are two mains reasons for this.

First of all, the global agricultural market has been in a recession for some time now. Crop volumes have declined, and farmers have created less demand for Syngenta’s products and services.

For Syngenta, this trend has manifested itself in declining year-over-year sales.

The company reported $12.8 billion of 2016 sales, down from $13.4 billion the year prior. This is a reduction of 4.5%.

Seth Klarman

Source: Syngenta 2017 Analyst Presentation, slide 6

The effect on Syngenta’s profitability has not been as profound thanks to cost cutting and efficiency initiatives.

Fiscal year 2016 saw ~$2.7 billion of EBITDA, which was down only slightly from ~$2.8 the year prior. This is a reduction of 3.6% (compared to 4.5% for the company’s revenues).

Syngenta’s EBITDA margin actually increased year-over-year because the company’s revenues declined more than EBITDA.

Seth Klarman

Source: Syngenta 2017 Analyst Presentation, slide 7

Fortunately, the company is expected 2017 to be a year of stabilization for the agricultural industry. Growth is expected to resume after that.

Syngenta is

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