Are you a billionaire fund manager with a proven ability to pick stocks that outperform? If you answered no, there could be a thing or two that you can learn from the handful of folks who can honestly answer yes.
Luckily for everyday investors like us, institutions that trade stocks need to disclose their transactions to the Securities and Exchange Commission every three months.
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These dividend-paying stocks were some of the largest portfolio additions made by billionaire investors with long, successful track records. Here's why they could deserve a place in your portfolio, too.
1. CVS Health
Ray Dalio's hedge fund, Bridgewater Associates, made a relatively large bet on CVS Health (CVS 0.40%) stock in the second quarter. You're most likely familiar with this company's gigantic chain of retail pharmacies and health clinics. It's CVS' less visible business segments that have allowed it to more than triple its dividend payout over the past decade.
In 2018, CVS Health acquired Aetna, a leading health benefits manager that collects insurance premiums from around 35 million members. The conglomerate also operates an industry-leading pharmacy benefits management business with around 110 million members at the moment.
Combining benefits management businesses with operations that provide those benefits has led to windfall profits. Since acquiring Aetna in 2018, CVS has been able to repay $22.5 billion worth of debt that it took on to buy Aetna.
CVS Health's stock offers a 2.4% dividend yield at the moment that could climb sharply in the years to come. Over the past 12 months, just 18% of the $15.9 billion in free cash flow generated by operations was needed to meet the company's dividend commitment. Investors seeking a steadily growing stream of passive income should follow Dalio's lead and add this stock to their own portfolios, too.
2. Chevron
Warren Buffett and Berkshire Hathaway, the holding company he's led since 1965, started investing more heavily than usual in oil stocks last year. Berkshire's hunger for energy stocks has continued into 2022. In the second quarter, Buffett bought heaps more shares of Chevron (CVX 0.27%), an oil producer that offers a 3.5% yield right now.
Buffett was right to predict that Russian sanctions would raise oil prices, and, in turn, the oil Chevron produces. More recently, the Organization of the Petroleum Exporting Countries (OPEC) decided to cut supply by around 2 million barrels per day.
OPEC's production cut will probably make Chevron's already profitable operation even more lucrative. Then again, soaring interest rates could spark a deep global recession that hammers oil prices into the dirt.
This is a good stock for investors seeking passive income, as it can still make and raise dividend payouts if oil prices fall significantly because in addition to a production business, Chevron sells refined fuels and petrochemical products that are cheaper to produce when raw material prices drop.
3. Microsoft
Microsoft (MSFT -1.00%) currently offers a 1.1% yield. That isn't much to look at now, but it could explode higher for patient investors. A leading position in the rapidly growing market for cloud computing makes this a great stock for investors seeking a passive income stream that could grow into a raging river once they're ready to retire.
With an eye on soaring cloud services revenue, James Simons and the fund he manages, Renaissance Technologies, bought over 3 million shares of Microsoft in the second quarter. During the tech titan's fiscal Q4, which ended June 30, 2022, cloud revenue soared 28% year over year to $25 billion.
Microsoft's cloud business could continue growing at a rapid pace for many years to come. According to Precedence Research, the global cloud computing market will soar from an estimated $380 billion in 2021 to more than $1.6 trillion by 2030.
Microsoft nearly tripled its dividend payout over the past decade. With an industry-leading cloud business driving growth, the company has what it needs to maintain this impressive pace for the long run. Putting this stock in a diversified portfolio could go a long way toward helping you achieve all your retirement goals.
