If you’re an investor who doesn’t yet have access to billions of dollars of capital, you could probably learn a few things from those who do. Fortunately, it’s not very difficult to keep tabs on the world’s most successful investors.
Every three months, people managing a portfolio worth $100 million or more must report their trading activities to the Securities and Exchange Commission. A quick look at the latest news reveals that a handful of billionaire investors have purchased millions of shares of two dividend-paying companies currently offering extremely high yields.
Actions of Pfizer (NYSE:PFE) And Annaly Capital (NYSE: NLY) offer returns several times higher than the average of the stocks in the benchmark index S&P500 index. Unfortunately, stocks rarely offer such high yields unless there is good reason to be concerned about their ability to maintain their payout.
Let’s look at their recent performance to see if following the lead of billionaire fund managers makes sense for your portfolio.
Annaly Capital
Annaly Capital is a real estate investment company (FPI) that buys mortgage-backed securities (MBS) instead of real estate. It makes its living from the spreads between its short-term borrowing expenses and the interest it receives from the MBS, which it hopes will yield more, in its portfolio.
At recent prices, Annaly shares are yielding a whopping 13.6%. The huge yield is attracting funds run by billionaires. Citadel Advisors, led by Ken Griffin, and Millennium Management, led by Israel Englander, bought shares in the first quarter.
Annaly Capital does not own real estate, so it must use its MBS portfolio to obtain loans. This doesn’t happen often, but from time to time the value of one’s MBS can drop. When this happens, lenders ask for more capital and the company may end up selling parts of its portfolio at knockdown prices.
Before you jump into buying Annaly Capital stock, it’s important to know that the company has cut its dividend by 45.8% since 2019. Investors who purchased the stock and reinvested all dividends have gained only about 39% over the past decade.
While there is a good chance that buying Annaly Capital now and holding for the long term will also lead to positive gains, the unpredictability of its dividend makes it a poor choice for most income-seeking investors.
Pfizer
In 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 is down because record sales of its COVID-19 products evaporated faster than the market expected. Now that the worst is over, the stock looks like a bargain.
Pfizer’s stock has been falling, but the company still raised its dividend payout for the 15th consecutive year last December. The stock offers a yield of 6.2% at recent prices, or about 4.6 times more than you’d get from the average S&P 500 dividend payer.
At recent prices, you can buy Pfizer for about 11.6 times forward earnings. This is a reasonable valuation for a company that you expect to grow at a snail’s pace. A review of this drugmaker’s recent performance and outlook suggests that it will grow much faster than the market expects.
Pfizer has invested much of its Covid-19 profits into new drugs, many of which are already on the market. Excluding Covid-19 sales and the negative effects of a stronger U.S. dollar, first-quarter sales were up 11% from a year earlier.
Pfizer has the longest list of innovative new drugs in the pharmaceutical industry, and it continues to grow relatively quickly. The FDA has approved nine new drugs from the company in 2023, and they are poised to drive growth over the next decade. Adding a few stocks to a diversified portfolio seems 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 Pfizer and recommends Pfizer. The Motley Fool has a disclosure policy.
2 High-Yield Dividend Stocks Billionaires Are Buying Left, Right: Could They Be Smart Buys For You In July? was originally published by The Motley Fool
