3 Dividend Stocks That the Best Money Managers on Wall Street Love

It takes a lot of time to find a gem. That’s why following the trades of billionaire investors can be worthwhile, as it narrows down the more than 3,750 stocks that are currently traded to a more manageable number.

That doesn’t mean you should blindly follow their trades, as you still should do your own research to make sure the stock is a good fit for your portfolio. Yet, you can often see patterns in their investing ideas. Many times, those patterns lead to dividend stocks.

Since income-generating stocks have a long history of outperforming non-payers, it’s natural the smart money would gravitate toward this type of investment. Even though Warren Buffett won’t let Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) pays a dividend, he loves it when the stocks he owns do.

With that in mind, here are three dividend stocks money managers love and were buying in the fourth quarter.

Lockheed Martin (LMT)

There were probably more sellers than buyers of Lockheed Martin (NYSE:LMT) stock in Q4, but CEO Tom Gayner of Markel (NYSE:MKL) was buying 45,500 shares at an average price of $465 per share. The purchase represented a five-fold increase in the number of shares the company held. 

Lockheed Martin is the world’s biggest defense contractor with $67.6 billion in annual revenue, virtually all of it comes from government contracts. The number of active global conflicts has grown over the past few years, from the war in Ukraine to the Middle East. The U.S. government is supplying the combatants in these hot spots and drawing down the U.S. military’s own stockpile. That means business is booming for Lockheed and will be for years to come.

The defense contractor reported it had record backlog of $160.6 billion at the end of December. Lockheed only needed to spend $1.5 billion on research and development, and another $1.5 billion on capital expenditures, to maintain its operational machine.

You can buy LMT stock now at a lower price than Gayner’s average buy-in cost, which makes it a good bet on future growth. With a dividend yielding 2.9% annually, Lockheed Martin is a solid choice to buy.

McDonald’s (MCD)

Fast food giant McDonald’s (NYSE:MCD) was once a place you could get tasty food at a good price, but inflation is eroding that reputation. Pundits try to tell you inflation is coming down but that’s absent volatile areas like food and fuel.

Last month, the Bureau of Labor Statistics showed the unadjusted cost of food away from home was soaring 5.1%, compared to last year. As food is such an essential component of a family’s budget, ignoring it only masks its true cost.

Yet business is still growing for McDonald’s, which reported comparable U.S. sales were up 8.7% last year. Much of the growth was due to higher average ticket sales from rising prices. Operating profits, though, surged 24%, helping to lift MCD stock 20% above its 52-week low.

CEO Ken Griffin at Citadel was one buyer of MCD stock at an average price of $272 per share. With shares trading for a recent price of $292 a share, that gives the billionaire investor a 7% unrealized gain. Yet, the Golden Arches also pays a healthy dividend. It just hiked the payout an additional 10 cents per share, making Griffin’s holdings that much more valuable.

Microchip Technology (MCHP)

While Jefferies Group (NYSE:JEF) probably wasn’t buying Microchip Technology (NASDAQ:MCHP) for the dividend it pays, MCHP yields about 2% annually. It is healthy and safe with little risk of being cut and the payout is not growing much.

There is a broad slowdown in the chip market now that the supply constraints brought on by the pandemic have largely cleared up. Intel (NASDAQ:INTC), Texas Instruments (NYSE:TXN) and others warn of chip market weakness for the foreseeable future. Revenue at Microchip is down, too.

Fiscal third-quarter sales tumbled 22% sequentially last month and were down 18% year over year. Operating profits were down 35%. Yet MCHP stock is up 28% from the lows hit in early November. That still means Jefferies is sitting on an 8% gain from its $82 average buy price. Investors, though, might be able to get even better prices on the semiconductor stock by waiting a bit longer.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.