If you’re an investor who doesn’t already have access to billions in capital, you could probably learn a few things from the folks who do. Luckily, keeping tabs on the world’s most successful investors isn’t very hard to do.
Every three months, people managing a portfolio worth $100 million or more have to report their trading activity to the Securities and Exchange Commission. A quick look at the latest disclosures shows a handful of billionaire investors bought millions of shares of two dividend-paying stocks that currently offer ultra-high yields.
Shares of Pfizer (NYSE: PFE) and Annaly Capital (NYSE: NLY) offer yields that are several times the average stock in the benchmark S&P 500 index. Unfortunately, stocks rarely offer yields this high unless there’s a good reason to worry about their ability to maintain their payout.
Let’s look at their recent performance to find out if following the lead of billionaire fund managers makes sense for your portfolio.
Annaly Capital
Annaly Capital is a real estate investment trust (REIT) that buys mortgage-backed securities (MBSes) instead of real estate. It earns a living in the margins between its short-term borrowing expenses and the interest it receives from the hopefully higher-yielding MBS in its portfolio.
At recent prices, Annaly shares offer a mind-blowing 13.6% yield. The enormous yield is attracting funds run by billionaires. Citadel Advisors, which is run by Ken Griffin, and Millennium Management, which is run by Israel Englander, bought shares in the first quarter.
Annaly Capital doesn’t own real estate, so it has to use its MBS portfolio to secure loans. It doesn’t happen often, but from time to time, the value of its MBS can dip. When this happens, lenders demand more capital, and the company can end up selling off portions of its portfolio at fire sale prices.
Before you jump up to fill your portfolio with shares of Annaly Capital, it’s important to realize the company has lowered its dividend by 45.8% since 2019. Investors who bought the stock and reinvested all the dividends have gained only about 39% over the past decade.
While there’s a good chance that buying Annaly Capital now and holding over the long run also leads to positive gains, the unpredictability of its dividend makes it a bad choice for most income-seeking investors.
Pfizer
During the first three months of 2024, John Overdeck and David Siegel of Two Sigma bought 18.9 million shares of Pfizer. The stock has fallen by more than half since its peak in late 2021.
Pfizer’s been dropping because record-breaking sales of its COVID-19-related products evaporated faster than the market expected. Now that the worst is over, though, the stock looks like a terrific bargain.
Pfizer’s stock dropped, but the company still raised its dividend payout for the 15th consecutive year last December. The stock offers a 6.2% yield at recent prices, which is about 4.6 times more than you’d receive from the average dividend payer in the S&P 500.
At recent prices, you can buy Pfizer for around 11.6 times forward-looking earnings expectations. That’s a reasonable valuation for a business you expect to grow at a snail’s pace. A look at this drugmaker’s recent performance and forward outlook suggests it will grow much faster than the market is expecting.
Pfizer invested heaps of COVID-19-related profits into new drugs, many of which are already on the market. If we exclude COVID-19-related sales and the negative effects of a stronger U.S. dollar, first-quarter sales rose 11% year over year.
Pfizer has the longest list of innovative new drugs in the pharmaceutical industry, and it’s still growing relatively quickly. The FDA approved nine new medicines from the company in 2023, and they’re poised to drive growth in the decade ahead. Adding some shares to a diversified portfolio looks like a relatively safe way for income-seeking investors to boost their passive income stream.
Should you invest $1,000 in Annaly Capital Management right now?
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
2 Ultra-High-Yield Dividend Stocks Billionaires Are Buying Left and Right: Could They Be Smart Buys for You in July? was originally published by The Motley Fool
