Few investing strategies have been more successful over the long term than buying dividend stocks — and the world's most successful money managers know it.
Publicly traded companies that pay a regular dividend are usually profitable on a recurring basis and have demonstrated their ability to navigate economic downturns. In other words, these are time-tested businesses that tend to grow stronger and more profitable over time. They're also just the type of stocks billionaire money managers want to invest in during periods of heightened volatility, such as a bear market.
Thanks to publicly available 13F filings with the Securities and Exchange Commission, investors can easily track what the brightest minds on Wall Street have been buying and selling. Without question, high-yield dividend stocks (those with yields of 4% and above) have been on the menu.
What follows are four high-yield dividend stocks billionaires can't stop buying.
AT&T: 5.51% yield
The first supercharged income stock billionaire investors haven't been able to get enough of is telecom stock AT&T (T). AT&T's cash-flow consistency and 5.5% yield lured billionaires Jim Simons of Renaissance Technologies and John Overdeck and David Siegel of Two Sigma Investments to purchase 8.37 million shares and 2.37 million shares, respectively, during the September-ended quarter.
Without question, the push to 5G wireless download speeds is AT&T's biggest catalyst. Even though AT&T is outlaying a lot of capital to upgrade its wireless infrastructure, the reward looks to be well worth the investment. Wireless service revenue jumped 5.1% last year, with device replacement cycles encouraging users to take advantage of faster download speeds and consume more data. As data consumption rises, so will AT&T's wireless service operating margins.
Additionally, AT&T continues to see strong growth from its broadband segment. The 280,000 AT&T Fiber additions during the fourth quarter represented the company's 12th straight quarter above 200,000 net adds, and helped it reach a fifth consecutive year when at least 1 million net broadband customers were added. Broadband may not be the growth story it once was, but signing up new residential and business customers is a means to boost operating cash flow and encourage high-margin bundling opportunities.
AT&T has also benefited from its operating transformation that saw content arm WarnerMedia spun off last April and merged with Discovery to create Warner Bros. Discovery. When this merger took effect, Warner Bros. Discovery assumed certain lots of debt previously held by AT&T, as well as paid AT&T cash. The end result is better financial flexibility for AT&T.
Annaly Capital Management: 15.37% yield
Another high-octane dividend stock billionaire fund managers can't stop buying is mortgage real estate investment trust (REIT) Annaly Capital Management (NLY). Annaly's absurdly high 15.4% yield encouraged billionaires Israel Englander of Millennium Management and Jim Simons of Renaissance to respectively purchase 2.61 million shares and 2.26 million shares during the third quarter.
Last year probably couldn't have gone any worse for mortgage REITs. These are companies that borrow money at low short-term lending rates and use this capital to purchase higher-yielding long-term assets, such as mortgage-backed securities (MBS). With the Federal Reserve rapidly raising interest rates and the Treasury bond yield curve inverting, short-term borrowing costs soared, and Annaly's net interest margin — the average yield on its owned assets minus the average borrowing rate — shrank.
If there's a silver lining for Annaly Capital Management, it's that yield-curve inversions usually don't last long. Assuming the nation's central bank slows its pace of rate hikes at some point this year, we should see yield-curve stabilization and a possible end to the inversion, which could help Annaly's net interest margin.
Something else to consider is that Annaly's investment portfolio is heavily weighted to agency securities. An “agency” asset is backed by the federal government in the unlikely event of default. This protection is what gives Annaly's management the confidence to deploy leverage in order to increase its profit potential.
Paramount Global: 4.25% yield
A third high-yield dividend stock that's been nothing short of a lure for billionaire investors is media company Paramount Global (PARA). Billionaires Warren Buffett of Berkshire Hathaway and Israel Englander of Millennium respectively bought 12.79 million shares and 712,000 shares of Paramount Global stock during the third quarter.
The attraction billionaires have to legacy media stocks might have something to do with the current pessimism directed at ad-driven businesses. Since ad spending tapers off at the first sign of economic weakness, it's not uncommon for traditional TV media companies to take it on the chin. The thing is, economic expansions last considerably longer than recessions. In short, the advertising industry spends a disproportionate amount of time expanding relative to contracting.
Paramount Global's streaming services are also potentially appealing for billionaire investors. Paramount's direct-to-consumer segment added 20 million new subscribers from the prior-year period through Sept. 30, 2022 (67 million subscribers), and it has the No. 1 ad-supported free streaming service in the U.S., Pluto TV. If a recession were to materialize in the U.S., “free” becomes a very attractive price.
I'd also be remiss if I didn't note that Paramount Global's film entertainment segment had a banner year, thanks mostly to Top Gun: Maverick. If the U.S. box office can continue to build on its pandemic lows, Paramount will be able to count on another source of consistent cash flow.
Ford Motor Company: 4.65% yield
The fourth and final high-yield dividend stock billionaires can't stop buying is auto giant Ford Motor Company (F). The third quarter saw billionaires Ken Fisher of Fisher Asset Management and Ken Griffin of Citadel Advisors respectively purchase 44.87 million shares and 9.75 million shares of Ford.
If you're wondering why highly successful billionaire investors are suddenly enthralled with a legacy auto stock, the answer may well be the electrification of vehicles. Ford has earmarked $50 billion through 2026 to cover research into electric vehicles (EVs), autonomous vehicles, and batteries. The expectation is for the company to introduce 30 new all-electric models between the beginning of the decade and the end of 2025. Even though Ford is ramping EV production well after Tesla, it has branding power that a company like Tesla lacks.
On top of its burgeoning EV segment, Ford continues to dazzle with its more traditional lineup. The F-Series pickup has been America's top-selling truck for 46 straight years, and is the best-selling vehicle — not truck… vehicle — in the U.S. for 41 consecutive years. Trucks and SUVs provide automakers with juicier margins than sedans. This makes the F-Series incredibly important to Ford's profitability and cash-flow generation.
Lastly, don't overlook Ford's international opportunity. In particular, Ford has a chance to become an established player in China's extremely young EV market. Ford sold a little over 600,000 vehicles in China in both 2020 and 2021, which demonstrates it has an established presence in the world's No. 1 auto market. China could (pardon the pun) help fuel Ford's transition to an electrified future.
Originally published on Fool.com
Sean Williams has positions in AT&T, Annaly Capital Management, and Warner Bros. Discovery. The Motley Fool has positions in and recommends Berkshire Hathaway and Tesla. The Motley Fool recommends Warner Bros. Discovery and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.