Billionaire Investor Loading Up Whole Foods’ Stock
Hedge Funds Buying This Dividend Stock
Today’s chart shows our favorite place to find top dividend stocks: hedge fund activists.
These shareholders earn big returns by shaking up tired businesses. They push for dividend hikes, spin off non-core assets, and hire new management teams. As we’ve pointed out time after time, investing alongside them can result in handsome profits.
One of the dividend stocks in their crosshairs today is Whole Foods Market, Inc. (NASDAQ:WFM). Billionaire Barry Rosenstein, though his hedge fund JANA Partners LLC, has quietly built a stake in the natural food retailer. And while investors have dumped shares, you should pay attention for a couple of reasons. (Source: “Activist investors take nearly 9% stake in Whole Foods, push company to consider a sale,” CNBC, April 11, 2017.)
First, Rosenstein wants to speed up the company’s turnaround. Rivals have eaten into Whole Foods’ organic grocery business. Management has also reported tighter margins and lower same-store sales.
JANA will look into addressing the retailer’s “chronic underperformance.” In a regulatory filing published on April 10, the activist investor said he wants to unlock value from the firm’s real estate holdings and fight for changes in governance policies. Rosenstein has also lined up a slate of new members to join the board of directors. (Source: “Form Schedule 13D,” U.S. Securities and Exchange Commission, April 10, 2017.)
Better still, Rosenstein could push for more dividends. Analysts have suggested that Whole Foods close its U.K. business, where tight margins have resulted in poor returns. Others have pointed out the huge potential for the retailer to optimize its store base through more closures and downsizings.
This would free up cash flow for dividends, buybacks, and other shareholder-friendly deals. Whole Foods pays out a quarterly dividend of $0.14 per share, which translates into an annual yield of 1.7%. That distribution, however, could explode if management dials back spending on new stores.
All of which might result in outsized profits for shareholders. Rosenstein has waged similar campaigns over the past few years, taking on names like Agrium Inc. (NYSE:AGU), Tiffany & Co. (NYSE:TIF), and Bristol-Myers Squibb Co (NYSE:BMY). In those cases, investors collected handsome returns through cost cuts, dividend hikes, and asset spin-offs.
And this isn’t their first rodeo in the grocery game, either. In 2014, JANA pushed for the sale of Safeway Inc (NYSE:SWY). Shareholders earned a windfall profit after Albertsons Companies, Inc. bought out the supermarket chain.
You should watch for Rosenstein’s next move. The hedge fund has lined up possible board nominees four months before the deadline, suggesting they will be aggressive in pushing for changes. They could also force a sale to a rival like Kroger Co (NYSE:KR), Amazon.com, Inc. (NASDAQ:AMZN), or Wal-Mart Stores Inc (NYSE:WMT).
Even if no takeover materializes, a shakeup could be exactly what Whole Foods needs to get back in gear. JANA Partners has earned a reputation for making investors a fortune. And given its impressive resume, these targets often make the best dividend stocks around.
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