Hedge Funds Have Loaded Up on FedEx Corporation Stock, Should You, Too?
A Top Dividend Stock to Think About
Compared to the high-flying tickers in the U.S. stock market, FedEx Corporation (NYSE:FDX) hasn’t been a hot commodity. Over the past 12 months, shares of this Memphis, Tennessee-based global shipping giant tumbled more than 28%.
But that doesn’t mean no one’s buying it. According to the latest U.S. Securities and Exchange Commission (SEC) filings, several hedge funds have loaded up on FedEx stock.
For instance, Alexander Mitchell’s Scopus Asset Management LLC increased its position in FedEx Corporation by 326% in the fourth quarter of 2018. Owning 100,000 shares, Scopus Asset Management’s stake in FDX stock is now worth around $17.6 million. (Source: “Form 13F Information Table (Scopus Asset Management),” U.S. Securities and Exchange Commission, last accessed March 12, 2019.)
Then there’s Anthony Bozza’s Lakewood Capital Management LP, which doubled its FedEx stake during the quarter to 943,200 shares, worth more than $166.0 million at the current price. (Source: “Form 13F Information Table (Lakewood Capital Management),” U.S. Securities and Exchange Commission, last accessed March 12, 2019.)
If those two hedge funds don’t sound that familiar, how about this one: Ray Dalio’s Bridgewater Associates, LP, the biggest hedge fund in the world. In the fourth quarter of 2018, Bridgewater Associates quadrupled its position in FedEx Corporation from 33,673 shares to 135,259 shares. (Source: “From 13F Information Table (Bridgewater Associates),” U.S. Securities and Exchange Commission, last accessed March 12, 2019.)
The big question now, of course, is whether you should follow these hedge funds.
Well, in my opinion, there are two main reasons why income investors should seriously consider FDX stock today.
Good Value for Money
First is value. As I mentioned earlier, shares of FedEx Corporation haven’t been an investor favorite. One consequence of this lackluster share price performance is that while the overall stock market looks bloated, FDX appears to be undervalued compared to its peers.
Trading at around $176.45 apiece at the time of writing, FedEx Corporation has a price-to-earnings ratio of 15.14 times. The Air Freight & Courier Services industry, which the company belongs to, has an average price-to-earnings ratio of 24.09 times, substantially higher than FedEx’s. (Source: “FedEx Corp (FDX.N),” Reuters, last accessed March 12, 2019.)
Moreover, FedEx has a price-to-cash-flow ratio of 7.12 times, which is also much lower than the air freight and courier services industry’s average price-to-cash-flow ratio of 10.95 times.
Because FedEx has already established its business, its shares probably won’t shoot through the roof anytime soon. However, by being priced significantly cheaper than its peers, the company could offer more upside once investors start to realize its value.
And don’t think for one second that there’s no value in FedEx stock. Despite running a decades-old business, the company is still growing.
At the midpoint of management’s latest guidance range, FedEx is expected to earn an adjusted net income of $16.05 per share in its fiscal year 2019. That would mark a five-percent increase compared to the $15.31 per share the company earned in its fiscal 2018. (Source: “FedEx Corp. Reports Second Quarter Results,” FedEx Corporation, December 18, 2018.)
This also means that FDX stock is currently trading at less than 11-times its forward earnings, which is not a high multiple by any means.
The second reason for investors to check out FedEx stock is its generous dividend policy.
You see, we now know that the company appears to be undervalued, but it can take a while before sentiment turns more bullish.
That’s why I’m looking at dividends. While no one can predict investor sentiment with certainty, the company does pay shareholders dividends with certainty.
Right now, FDX stock has a quarterly dividend rate of $0.65 per share, which comes out to an annual yield of 1.5%. This is a cash payment that shareholders get no matter where the stock is going.
The most impressive part is the rate at which management has been raising the payout.
In 2013, FedEx Corporation paid total dividends of $0.58 per share. In 2018, the amount had grown to $2.30 per share. That’s an increase of 297% in just five years. (Source: “Dividends,” FedEx Corporation, last accessed March 11, 2019.)
The payout is also more than safe. As I mentioned earlier, FedEx’s adjusted earnings came in at $15.31 per share in its fiscal 2018, which ended May 31, 2018. Since the company declared and paid total dividends of $2.00 per share during the fiscal year, it was paying out just 13% of its adjusted profits. (Source: “FedEx Corp. Reports Fourth Quarter and Full-Year Earnings,” FedEx Corporation, June 19, 2018.)
Bottom Line on FedEx Corporation
The board of directors of FedEx Corporation usually reviews the dividend policy in June. Given the company’s growing business and conservative payout ratio, they should have no problem announcing another sizable dividend increase in about three months.
Meanwhile, FedEx Corporation trades at an attractive valuation. And since multiple hedge funds have been loading up on FDX stock, maybe income investors should take a look at it, too.