Finance
3 Branded Stocks With Ultra High Returns Billionaires Can’t Stop Buying
One of the best parts about putting your money to work on Wall Street is that there is more than one right answer. With thousands of publicly traded companies and exchange-traded funds (ETFs) to choose from, investors of all walks and risk tolerances are sure to find one or more securities that tick all the boxes.
But of these myriad investment strategies, few have proven to be more effective in the long term than buying high-quality investments dividend stocks.
Last year, investment advisory firm Hartford Funds released a comprehensive report (“The Power of Dividends: Past, Present, and Future”) that praised the many ways in which dividend stocks have run circles around their non-paying counterparts. This outperformance is especially noticeable over longer periods.
According to Hartford Funds, in partnership with Ned Davis Research, dividend-paying companies averaged an annual return of 9.17% over the previous half-century (1973-2023), and did so while being 6% less volatile than the broad S&P500. Meanwhile, the non-paying countries delivered a less impressive 50-year annualized return of 4.27% and were 18% more volatile than the benchmark S&P 500.
But just because dividend stocks have outperformed overall doesn’t mean all income stocks have been excellent investments. A number of branded ultra-high yield dividend stocks, whose yields are at least four times the current yield of the S&P 500 (1.34%), have bad lagged behind in this bull market.
Still, the latest round of Form 13F filings detailing the buying and selling activity of Wall Street’s top money managers in the last quarter show that three underperforming but highly well-known ultra-high-yield dividend stocks were popular buys among billionaires. investors.
Ford Motor Company: 5.71% return
The first defeated ultra-high yield dividend stock that billionaire money managers can’t stop buying is one of Detroit’s prized automakers. Ford Motor Company (NYSE:F). Ford and its outsized yield, approaching 6%, attracted four billionaire buyers in the second quarter, including (total shares purchased in brackets):
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Ole Andreas Halvorsen of Viking Global Investors (18,789,638 shares)
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Ken Fisher of Fisher Asset Management (4,825,153 shares)
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Jeff Yass of Susquehanna International (3,645,709 shares)
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Cliff Asness of AQR Capital Management (2,497,695 shares)
Despite all three major stock indexes hitting new all-time highs in July, Ford shares returned to three-year lows in recent weeks. The culprit was the company’s leadership, which was affected by higher costs related to recalls and steep losses expected in the Model e operating segment. This is the division responsible for electric vehicles (EVs).
The good news for Ford is that the company has the opportunity to pull the levers and shift its focus to electric cars, if that’s what consumers are interested in. Last year, Ford announced plans to defer $12 billion in cumulative spending on electric vehicles, which isn’t a drop in the ocean. If customers want to focus on internal combustion engine (ICE) vehicles, which are highly profitable for Ford, management will be happy to oblige.
Remember, Ford’s F-Series pickup has been the best-selling truck in the U.S. for 47 years in a row, and the best-selling car in this country for 42 years in a row. In the automotive industry, size usually matters; larger trucks typically generate better margins for automakers than smaller sedans. The continued dominance of the F-Series is critical to Ford’s profitability.
Billionaires might also take comfort from Ford’s relatively solid capital position (more than $34 billion in cash, cash equivalents and marketable securities) and the company raising its adjusted 2024 free cash flow guidance.
Walgreens Boots Alliance: 9.24% return
A second struggling but extremely well-known ultra-high yield dividend stock that billionaire executives can’t stop buying is the pharmacy chain Walgreens Boots Alliance (NASDAQ: WBA). In the quarter ending in June, three top billionaires bought shares of Walgreens, including (total shares purchased in brackets):
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Ken Griffin of Citadel Advisors (608,979 shares)
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Jeff Yass of Susquehanna International (380,334 shares)
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Steven Cohen of Point72 Asset Management (323,532 shares)
With shares of Walgreens Boots Alliance down as much as 78% over the past five years, its returns have skyrocketed to more than 9%. This massive underperformance for Walgreens can be attributed to increasing competitive pressure from online pharmacies, as well as poor early returns from the shift to healthcare services, which prompted a massive writedown earlier this year.
Perhaps the saving grace for Walgreens is its new CEO, Tim Wentworth, who has decades of experience as a leader in the healthcare industry. Former CEO Rosalind Brewer had a long background in retail but no prior experience in healthcare, and this has put Walgreens at a competitive disadvantage. While Wentworth’s bandage-off tactics can sometimes be painful, such as announcing the closure of a significant percentage of underperforming stores, they are a necessity for Walgreens to complete its turnaround.
One part of Wentworth’s turnaround proposal includes tightening the company’s belt. Closing underperforming stores and selling non-core assets is a way to raise capital, reduce debt and provide the company with more financial flexibility.
But he also understands that Walgreens will have to invest in the future and evolve. This includes investing in digitalization of the supply chain, promoting direct-to-consumer sales and building out the network of healthcare services in markets where it makes financial sense to do so.
It won’t be a quick turnaround, but Walgreens has the pieces to make it happen.
AT&T: 5.81% yield
The third ultra-high-yield dividend stock brand that billionaire investors have eagerly piled into is telecom titan AT&T (NYSE:T). Despite AT&T underperforming in the current bull market, five prominent billionaires were avid buyers in the second quarter, including (total shares purchased in brackets):
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Ken Griffin of Citadel Advisors (7,360,132 shares)
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Cliff Asness of AQR Capital Management (6,602,586 shares)
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Ray Dalio of Bridgewater Associates (307,912 shares)
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John Overdeck and David Siegel of Two Sigma Investments (96,400 shares)
AT&T’s woes came to a head last summer The Wall Street Journal released a report claiming that they and other legacy telecom companies could face high cleanup costs and health-related liabilities related to their use of lead-coated cables. Although AT&T refuted the claim WJGiven AT&T’s findings, and any future liabilities (should there be any) would likely be determined in the notoriously slow US legal system, the climb for AT&T stock has been slow.
On the plus side, AT&T’s investments in its network are paying off. Wireless users are increasingly consuming high-margin data, and the company’s postpaid churn rate is at an all-time low of 0.7%. In other words, the company’s cash flow was very predictable.
Additionally, upgrading the network to support 5G download speeds has been a major boost to its broadband business. Broadband may no longer be the growth story of the early 2000s, but it is still a source of predictable operating cash flow and is often the dangling carrot that AT&T can use to encourage residential customers to bundle their services.
The main draw for billionaires, however, may be AT&T’s significantly improved balance sheet. Since spinning off its content arm WarnerMedia, the company’s net debt has fallen from $169 billion as of March 30, 2022 to $126.9 billion as of June 30, 2024. AT&T should have no trouble maintaining its nearly 6% payout.
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Sean Williams has positions in AT&T and Walgreens Boots Alliance. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has one disclosure policy.
3 Branded Stocks With Ultra High Returns Billionaires Can’t Stop Buying was originally published by The Motley Fool
