If you want to learn how to become a better golfer, you can watch professionals compete, but the same cannot be said for investing. Billionaire investors spend most of their time learning about the companies and industries they invest in, which doesn’t make for good television.
Ordinary investors may not have the opportunity to see billionaire fund managers ply their trade in front of a live audience, but they can get close. Every three months, the U.S. Securities and Exchange Commission requires almost anyone managing more than $100 million in assets to disclose their trading activities.
In the third quarter, we saw a handful of billionaire fund managers buy millions of shares of two very high-yielding, dividend-paying stocks.
The billionaires who run the funds that bought these stocks will be the first to warn you that they make hundreds of trades every quarter and they can’t all be zingers. Here’s a closer look at these companies to see if following in the footsteps of billionaire fund managers is the right move for your portfolio.
1. AGNC Investment Company
Actions of AGNC Investment (NASDAQ:AGNC) offer a stunning 14.4% yield at recent prices. This is a real estate investment company (REIT) who does not own any real estate. Instead of collecting rent from tenants, it buys mortgage-backed securities that offer rates of return higher than its costs of capital.
A stunning return likely prompted Susquehanna’s Jeff Yass to buy 1.4 million shares of AGNC in the third quarter. Yass isn’t the only billionaire betting on this mortgage REIT. John Overdeck and David Siegel of Two Sigma Investments scooped up 1.2 million shares.
As its name suggests, AGNC invests in mortgage-backed securities that are guaranteed by a government agency in the event of default. Because the U.S. government guarantees every mortgage on the securities it buys, incoming cash flows are hyper-reliable.
Although AGNC’s incoming cash flow is generally reliable, the company lost $0.68 per share in the third quarter due to the sharp increase in interest expense in 2022 and early 2023.
Most income-seeking investors avoid AGNC stock and Mortgage REITs generally because their interest charges can increase sharply for reasons beyond their control. For example, rising interest rates can quickly lower the value of the mortgage-backed securities they use as collateral.
With less collateral to offer, lenders could charge higher or worse interest rates. When the value of mortgage-backed securities falls too quickly, mREITs like AGNC may be forced to sell their assets at fire-sale prices.
Investors with a long-term view will notice that AGNC has reduced its payout by a third over the past five years. Buying this stock made sense for billionaires with diversified portfolios managed by a team of professionals. For everyday investors who need a reliable passive income stream, it’s probably best to avoid this mREIT and others like it.
2. Medical Property Trust
Medical Properties Trust (NYSE:MPW) is a REIT specializing in hospitals and related facilities. At recent prices, the stock offers a staggering 12% yield.
This huge return prompted Philippe Laffont and Coatue Management to buy 5.7 million shares in the third quarter. Israel Englander and the fund he runs, Millennium Management, bought 3.3 million shares.
This REIT has a diversified portfolio of 441 buildings across the United States and nine other countries. Medical Properties Trust generally requires hospital operators to sign long-term net leases that pass all variable costs associated with building ownership, such as taxes and maintenance, to tenants.
The crucial role hospitals play in their communities, along with the use of net leases, should make Medical Properties Trust’s cash flow hyper-reliable, but that hasn’t been the case. A handful of large tenants struggling to make ends meet led the company to cut its payments by 48% in September.
Medical Properties Trust has a fairly diverse portfolio managed by 55 hospital operators. Unfortunately, nearly a fifth of its assets are leased to Steward Health, which has been having a tough time lately. In November, we learned that Steward was late in paying rent for September and October.
Steward’s situation could become even more difficult in 2024. The U.S. Department of Justice recently filed a lawsuit alleging false allegations, and it’s not the first time. Steward and related entities agreed to pay $4.7 million to settle a false claims violation in 2022.
Medical Properties Trust’s largest tenant appears to be in a mess, but that probably won’t stop it from meeting its recently reduced dividend obligation. Adjusted funds from operations (FFO), an earnings metric used to evaluate REITs, came in at $0.30 per share during the third quarter. That’s twice as much as it needed to pay its latest dividend, set at $0.15 per share.
Taking a chance on this REIT isn’t a bad idea for income-seeking investors with plenty of time before retirement. If you’re already retired and need very reliable dividend payments, it’s probably best to keep looking.
Should you invest $1,000 in AGNC Investment Corp. right now ?
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2 Very High Yielding Dividend Stocks Billionaires are buying left and right. Could these be smart purchases for you in 2024? was originally published by The Motley Fool