We recently published a list of The 10 best dividend-paying stocks to buy according to quant hedge fund AQRIn this article, we’ll take a look at how Cisco Systems, Inc. (NASDAQ:CSCO) compares to the other dividend-paying stocks to buy, according to quant hedge fund AQR.

Only a handful of hedge funds pursue unique investment strategies, and Cliff Asness’ Applied Quantitative Research, or AQR Capital, stands out among them. Known for his quantitative value strategies, Asness co-founded AQR in 1998 after working at Goldman Sachs. He and his partners developed the firm’s investment approach while in the University of Chicago’s Ph.D. program, emphasizing value and momentum strategies. These different approaches have delivered strong results for the fund over the years. In fact, AQR’s longest-running multi-strategy fund returned 18.5% after fees last year and had its best year in 2022, gaining 43.5%. In January 2023, Asness predicted that buying undervalued companies in certain sectors and shorting overvalued companies would be particularly beneficial this year.

With the growing focus on generative AI and machine learning, Asness mentioned that he has a natural tendency to swim against the grain. However, he admits that he has to overcome this instinct as he sees significant opportunities in machine learning. During a recent Bloomberg Invest conference, Asness emphasized that AQR is increasingly relying on automated decision-making and expressed the belief that the machine could give a small edge to human judgment. The company’s improved performance in recent years can be attributed in part to market cycles, but it has also made some changes.

Although Asness now focuses on artificial intelligence, diversification has always been a fundamental aspect of his investment strategy. He believes that concentrating investments in a single asset does not adequately account for the inherent risks of financial markets. According to Asness, the reason for favoring a diversified portfolio is that it can provide a higher return for the risk taken, rather than simply offering a higher expected return.

When it comes to diversification, different investment strategies can have different advantages. Dividend investments are particularly popular among investors. In his Magazine for financial analystsfor which he twice received the Graham and Dodd Award for best paper of the year, Asness emphasized the value of dividends. He explained that companies that pay higher dividends generally experience stronger earnings growth over the following decade than those that pay lower dividends. Asness argued that high dividend payouts often indicate a company’s confidence in its future prospects, as companies are reluctant to cut dividends and would typically not pay them if they expected poor performance. In addition, companies that pay high dividends must be more selective in their investment projects, potentially leading to wiser investment decisions. On the other hand, companies that pay minimal dividends may either be struggling (as demonstrated by the inflated earnings in 1999) or in the process of “empire building,” where managers with plenty of cash may imprudently invest in less profitable ventures.

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Asness’s penchant for dividend stocks is also evident in his Q2 2024 portfolio, which includes a significant number of dividend-paying stocks. With that in mind, we’ll look at some of the best dividend-paying stocks according to AQR Capital.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).

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Cisco Systems, Inc. (NASDAQ:CSCO)

AQR Capital share value: USD 458,123,113

Dividend yield as of August 22: 3.17%

Cisco Systems, Inc. (NASDAQ:CSCO) ranks fourth on our list of highest dividend stocks. The American digital communications technology company is reporting strong results, seeing consistent customer demand, and experiencing growth across all business segments as customers rely on Cisco to connect and protect all areas of their organizations in the age of AI. In the fourth quarter of fiscal 2024, the company reported revenue of $13.6 billion, beating analyst estimates by $106.2 million. Revenue, gross margin, and earnings per share were at or above the high end of the forecast range in the fourth quarter, reflecting the company’s operational discipline. Going forward, the focus remains strong on growth and consistent execution, with strategic investments in AI, cloud, and cybersecurity, while maintaining a focus on return on capital.

Cisco Systems, Inc.’s (NASDAQ:CSCO) acquisition of Splunk for $28 billion earlier this year is an important part of the company’s strategy to improve cyber threat. The acquisition of the data analytics and cybersecurity company proved beneficial, adding $960 million to the company’s revenue in the fourth quarter of fiscal 2024. The investment has put the company in a net debt position aimed at supporting growth and increasing returns to shareholders. CFO Scott Herren mentioned in an interview that the company will have the option to either reduce its debt or maintain it, depending on future interest rates. He emphasized that Cisco Systems, Inc. (NASDAQ:CSCO) will focus on disciplined capital allocation and growth investments rather than focusing solely on debt reduction.

However, Cisco Systems, Inc. (NASDAQ:CSCO)’s debt should not be investors’ biggest concern due to its strong cash generation. The company’s operating cash flow was about $3.7 billion last quarter, and it ended the quarter with nearly $18 billion in cash and cash equivalents. Reflecting the CEO’s focus on capital allocation, the company paid out $1.6 billion to shareholders in the form of dividends.

Cisco Systems, Inc. (NASDAQ:CSCO) pays a quarterly dividend of $0.40 per share and has a dividend yield of 3.17% as of August 22. According to AQR Capital, it is one of the highest dividend paying stocks as the company has rewarded shareholders with increasing dividends for the past 17 years in a row.

According to Insider Monkey’s database for Q2 2024, 61 hedge funds owned shares of Cisco Systems, Inc. (NASDAQ:CSCO), up from 58 in the previous quarter. The consolidated value of these shares is around $1.6 billion.

Total CSCO 4th place on our list of the best dividend-paying stocks to buy according to quant hedge fund AQR. While we recognize CSCO’s potential as an investment, we believe some highly undervalued dividend stocks promise higher returns and do so in a shorter time frame. If you’re looking for a highly undervalued dividend stock that has more promise than CSCO but trades at less than 7 times earnings and yields nearly 10%, read our report on the dirt cheap dividend stock.

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Disclosure: None. This article was originally published on Insider Monkey.