There's never a bad time to start investing, but the tail end of 2021 was the worst time to begin putting your money to work in the stock market that nearly any of us can remember. Soaring interest rates and fear of a recession that those higher rates could cause have weighed heavily on stock prices across the board. In the first half of 2022, the benchmark S&P 500 index suffered its worst first-half loss since 1970.
When markets fall, they tend to come crashing down relatively quickly. The important thing to remember at times like these is that every bear market in history has been wiped away by a much longer recovery period.
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With an eye toward long-term gains, billionaire money managers have been buying shares of stable businesses that distribute most of their profits to shareholders. In the current bear market, these beaten-down stocks look especially attractive because they offer ultra-high dividend yields. Here's why billionaire money managers can't get enough of them lately.
Medical Properties Trust: 11.3% yield
Israel Englander and the fund he runs, Millennium Management, scooped up more than 1.5 million shares of Medical Properties Trust (MPW -1.10%) in the second quarter. Shares of this real estate investment trust (REIT) have tumbled around 35% since the end of June. At its new knocked-down price, the dividend-paying stock offers a tantalizing 11.3% yield.
Billionaires are bullish about Medical Properties Trust because it invests in hospitals and not the operators that lease its hospitals. The amount of time adults spend in hospitals rises rapidly after age 65 and this population is rising steadily. The U.S. Department of Health and Human Services expects America's over-65 population to rise from 39.6 million in 2019 to 80.8 million in 2040.
With around 46,000 beds spread across 447 properties, Medical Properties Trust is one of the world's largest hospital owners. The company relies on net leases that transfer all the variable costs of ownership onto the operators that lease its hospitals. This a great stock to hold through good times and bad because net leases make its cash flows highly predictable.
Medical Properties Trust has been able to raise its dividend payout for eight consecutive years and it looks like there could be more raises ahead. Funds from operations (FFO) are a proxy for earnings that investors use to evaluate REIT stocks and the stability of their dividends. With FFO that reached $0.46 per share in the second quarter, the company should have no trouble raising its payout from its present level of $0.29 per share.
AGNC Investment: 18.6% yield
AGNC Investment (AGNC 0.97%) is also a REIT and as such, it needs to distribute at least 90% of its profits to shareholders in the form of dividends. Unlike Medical Properties Trust, though, AGNC investment buys mortgage-backed securities (MBS) instead of physical real estate.
The mortgages that back the securities in AGNC Investment's MBS portfolio are backed by U.S. government agencies like Fannie Mae and Freddie Mac in the event of a default. This means a nasty recession that leads to heaps of unpaid mortgages won't upset the company's incoming cash flows.
In the second quarter, billionaire hedge fund manager Ken Griffin and his fund, Citadel Advisors bought 4.3 million shares of AGNC. Englander and Millenium Management bought 2.8 million shares of the mortgage REIT too.
Over the long run, rising interest rates will benefit AGNC Investment because earns a living in the gaps between its short-term borrowing rates and long-term mortgage rates which are usually much higher. The stock has tanked around 30% since the end of June because short-term rates are rising so quickly that the company lost between $1.99 and $2.03 per share in the third quarter. At its new knocked-down price the stock offers an enormous 18.6% yield.
An abrupt end to rising interest rates could allow AGNC to quickly right its sinking ship and maintain its dividend payout. This stock is super risky right now because there's a solid chance that further losses will soon force the company to lower its payout significantly as it did in 2015 and 2020.
Billionaire money managers have been keen to buy shares of AGNC Investment and Medical Properties Trust but it's important to realize the positions are relatively small relative to their overall portfolios. Both of these stocks could deliver heaps of passive income to patient investors, but you should follow the billionaires' lead and only add them to portfolios that are well-diversified.
