NEW YORK (TheStreet) -- George Soros has averaged 30% returns managing the Quantum Fund, which now holds several stocks with high dividend yields.
This article takes a look at Soros' four largest holdings with dividend yields of 3% or higher. First, a quick background on Soros.
He was born in 1930 in Hungary where he fled in 1947 to avoid the onset of communism. Soros went to England where he graduated from the London School of Economics. He then moved to the United States and eventually opened his own hedge fund which would later be called the Quantum Fund. Here are four high-yield holdings in that fund.GM data by YCharts
General Motors (GM)
GM has a dividend yield of 4.1% and accounts for 1.9% of Soros' portfolio. The company, which declared Chapter 11 bankruptcy in 2009, has restructured itself and now has a market capitalization of $57 billion. It has deleveraged significantly. GM has a debt-to-equity ratio of 1.3, versus 4.9 for rival Ford (F). GM is one of Warren Buffett's highest yielding holdings, as well.
The company has been profitable every year since it went public in 2010 after a period of government ownership. It's the largest car maker in the country, with 17% market share in the U.S. About 40% of its revenue comes from overseas. Last year, its Chinese sales rose 12.1%.
Soros is likely excited about GM's growth prospects and its higher margins, thanks for cost controls.
The company's Chevrolet Volt EV concept car -- which has a 200-mile range -- could drive growth. Also, the company is restructuring operations in Russia, Thailand and Indonesia. Cost savings from these restructurings should provide a small boost to earnings in coming years.
GM has a forward price-to-earnings ratio of 6.9. The company appears to be deeply undervalued at this time. Investors may be downplaying the company's solid results since its restructuring because of fears of another bankruptcy. The current GM is not the same debt-bloated business that declared bankruptcy.
The company's high dividend yield and low price-to-earnings ratio should appeal to value-oriented dividend investors. The company has a low payout ratio of about 40% which means it will likely increase dividend payments in excess of its earnings-per-share growth rate during the next several years.DOW data by YCharts
Dow Chemical (DOW)
The company accounts for 2.5% of Soros' total portfolio. It has a 3.3% dividend yield. The company, which was founded in 1897, has a market cap of $59 billion. It makes chemicals and plastics in 35 countries, and has 53,000 employees.
Dow Chemical operates in five segments. Each segment is shown below along with the percentage of total Ebitda (earnings before interest, taxes, depreciation and amortization) generated for Dow in 2014:
- Agricultural Sciences: 10%
- Consumer Solutions: 11%
- Infrastructure Solutions: 12%
- Performance Materials & Chemicals: 22%
- Performance Plastics: 45%
Performance plastics is by far Dow's largest segment. The segment manufactures packaging, elastomers, and electrical and communication products.
The company is reinventing itself, shifting to higher-margin patented and value-added products from commoditized products. Dow has more than doubled the number of patent grants it receives per year from 2009 to 2014. The percentage of the company's revenue generated by patented products has risen to 23% in 2014 from 20% in 2011.
Dow is slowly divesting its commoditized business units. The company's most recent divestiture was its chlor-alkali business unit. Dow is merging this line with Olin Corp. (OLN). Dow shareholders will own 50.5% of the new company which will be the market leader in chlor-alkali products.
Dow's P-E ratio is 16.2, compared with 20.5 for the Standard & Poor's 500 Index.
Soros likely sees favorable long-term earnings trends in Dow because of its focus on higher-margin businesses and divestitures of commoditized lines.
Cypress Semiconductor (CY)
The chip maker is Soros' eighth-largest holding and makes up 2.1% of his total portfolio. It has a dividend yield of 3.5%.
Cypress has agreed to acquire Integrated Silicon Solutions (ISSI). The deal was in doubt after the companies failed to reach a merger deal because of antitrust concerns. Integrated Silicon's management is concerned that Cypress' management is not willing to take the necessary steps to ensure antitrust clearance in the U.S. and Germany.
On Wednesday, Cypress said it has revised the legal language in the deal regarding antitrust issues. Integrated Silicon responded by saying it's now comfortable with the deal. The acquisition would add complementary products and allow Cypress to better serve the automotive and industrial industries as about 75% of Integrated Silicon's revenue comes from those two industries.
Cypress has a forward P-E ratio of 12.7, compared with 17.5 for the broad-line semiconductor industry. Investors would benefit from Cypress' dividends while they wait for the company's earnings multiples to jump back in line with industry averages.
LyondellBasel Industries (LYB)
Lyondell is the second largest publicly traded chemical corporation after Dow Chemical. Soros has weighted his portfolio toward chemical businesses with positions in both companies. Lyondell is Soros' 10th largest holding and makes up 2% of his total portfolio. The company has a 3.1% dividend yield.
The company operates in five segments. Each segment is shown below along with the percentage of total Ebitdia each segment generated for Lyondell in the company's most recent quarter:
- Olefins & Polyolefins Americas: 53%
- Olefins & Polyolefins Europe/Asia/International: 18%
- Intermediates & Derivates: 17%
- Refining: 8%
- Technology: 4%
In the first quarter, Lyondell's earnings jumped 41%, thanks in large part to low oil prices. Oil is the company's primary input cost in producing olefins and polyolefins. Low oil prices boost margins in these segments. Olefins & Polyolefins account for about 70% of Ebitda for Lyondell, making them the most important products for the company.
Lyondell's management has used the company's cash flow wisely, repurchasing 3% of shares outstanding in the first quarter.
The stock looks cheap, with a P-E of 11.7. Lyondell, which is based in the Netherlands, has a much lower tax rate than U.S-based corporations do. That advantage combined with low oil prices and strong share repurchases makes Lyondell a high-quality business trading at a cheap price. Dividend growth investors looking for exposure to the chemical industry should consider the stock.