3 Ultra High Yielding Dividend Stocks Billionaires Can’t Stop Buying

The new year has not lacked major current events. Federal Reserve meetings, inflation data, coronavirus vaccine trial results and updates on the Russian-Ukrainian conflict are just a few of the events rocking the stock market.

But what you may have missed last week was one of the most important data releases of the quarter. February 15 marked the deadline for fund managers with more than $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F provides an under-the-hood look at the stocks some of Wall Street’s brightest minds were buying and selling over the past quarter.

After scouring the portfolios of some of Wall Street’s brightest billionaires, one trend stood out: their attraction to dividend-paying stocks. Specifically, billionaire fund managers couldn’t stop buying the following three ultra-high-income stocks.

Image source: Getty Images.

AT&T: 8.75% return

Billionaire’s first ultra-high-yield equity fund manager couldn’t stop buying in the fourth quarter is the telecommunications giant AT&T (NYSE:T).

Before we get into the AT&T discussion, I want to mention that a business reorganization (which I’ll talk about in a moment) will cut the company’s dividend by more than half by mid-year. While it remains a high-yield company with a yield above 4%, its tenure as an ultra-high-yield income stock is wearing thin.

Among billionaire investors, Jim Simons of Renaissance Technologies and Jeff Yass of Susquehanna International kept charging AT&T in the fourth quarter. Renaissance added nearly 18.2 million shares and made AT&T its 26th largest holding. During that time, Susquehanna bought over 11.1 million shares.

While the peak of growth for AT&T is long gone, the company offers two very clear upside catalysts over the next two years. For starters, there’s the ongoing rollout of 5G wireless infrastructure. It’s been a decade since wireless download speeds improved dramatically, which should lead to a persistent cycle of device replacement for consumers and businesses. Since data consumption generates the juiciest margins in AT&T’s wireless segment, 5G is its golden ticket to steady organic growth.

The other major catalyst, and the “business reorganization” I alluded to earlier, is the upcoming spin-off of the WarnerMedia content arm, and its merger with Discovery. This new media entity will have approximately 94 million pro forma streaming subscribers and should be able to reduce its annual operating expenses by more than $3 billion. The spin-off from WarnerMedia — AT&T investors will have a stake in this new media entity — will also allow AT&T to lower its payouts and work on debt reduction.

At just 8 times 2022 forecast earnings, AT&T is about as cheap as it’s ever been.

Two businessmen shake hands, one holding a miniature house in his left hand.

Image source: Getty Images.

AGNC Investment Corp. : yield of 10.66%

Another ultra-high yielding stock that caught the attention of billionaire fund managers in the fourth quarter is the mortgage real estate investment trust (REIT). AGNC Investment Corp. (NASDAQ:AGNC). AGNC has averaged double digit returns in 12 of the past 13 years.

During the fourth quarter, Ken Griffin of Citadel Advisors and the aforementioned Jeff Yass bought AGNC. Griffin more than tripled Citadel’s stake in the company by buying over 396,000 shares, while Susquehanna increased its position from just over 112,000 shares to over 294,000.

While AGNC’s securities investment purchases can be complex, Mortgage REIT’s operating model is simple. Companies like AGNC seek to borrow at low short-term rates and use that capital to buy assets with higher long-term yields, such as mortgage-backed securities (MBS). The average return on MBS and other assets held minus the average borrowing rate equals the firm’s net interest margin (NIM). The higher the NIM, the more profitable the AGNC can become.

The biggest concern for mortgage REITs right now is the flattening of the yield curve between 2-year and 10-year US Treasuries. As the yields between these notes decline, companies like AGNC typically see their book value drop and their NIM tighten.

However – and this is a fat however – higher lending rates, which are most certainly on the horizon, should also help increase the returns AGNC receives from the MBS it purchases. Over time, the MBS he buys will expand his NIM.

In addition, the company purchases almost exclusively agency-guaranteed securities. An agency asset is guaranteed by the federal government in the event of default. While this protection reduces the return AGNC receives on the MBS it purchases, it also allows the company to deploy leverage to increase its profits.

With AGNC Investment Corp. trading well below its book value, it could be a theft.

A person using their phone's speakerphone while walking down a city street.

Image source: Getty Images.

Mobile TeleSystems: 13.37% efficiency

The third Russian telecommunications company Mobile telesystems (NYSE:MBT).

MTS, as the company is more commonly known, has the highest return on this list at over 13%. But keep in mind that his semi-annual payment is not fixed. Rather, the company’s operating results dictate what is ultimately paid out to shareholders. Nevertheless, MTS has returned around 9% (or more) for most of the last five years.

The big buyers last quarter were Israel Englander of Millennium Management and Larry Fink’s black rock. Millennium doubled its existing position by buying nearly 1.4 million shares, while BlackRock added nearly 641,000 shares to its stake, which now stands at 21.8 million shares.

Mobile TeleSystems’ daily bread continues to be its telecommunications segment. Even though mobile saturation rates are high across Russia, MTS stands to benefit from the deployment of 5G infrastructure in major cities and the continued expansion of 4G into the vast rural areas of the country. A smartphone replacement cycle can boost MTS’ retail segment, as well as its data-driven wireless segment.

But what makes MTS so intriguing are the company’s many new verticals. It moved into banking, cloud computing, and streaming, to name a few new revenue channels. In the first nine months of 2021, these new verticals saw sales growth of 24% over the prior year period. These fast-growing verticals have the potential to increase MTS’s organic growth rate and significantly reduce churn by keeping customers within its ecosystem of products and services.

In line with the theme, Mobile TeleSystems is inexpensive at around 8 times Wall Street consensus earnings for 2022.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

About Mary Moser

Check Also

NYC Real Estate Mania, a new newsletter

In 1969, writer Pete Hamill made a modest proposition on the cover of this magazine: …