Any way you look at it, putting your money to work in the stock market has been awfully frightening this year. All three of the major market indexes experienced peak-to-trough declines of more than 20% this year.
This has been a rotten year for most of the stocks in the major market indexes, but these dark clouds haven't stopped billionaire money managers from buying certain stocks hand over fist this year.
Billionaires have been particularly eager to buy ultra-high-yield dividend stocks, and it's not hard to see why. Businesses that have profits to distribute generally outperform businesses that don't. Here's a look at two dividend stocks that the world's most successful investors were buying hand over fist in the third quarter.
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1. Medical Properties Trust: 8.8% yield
The first ultra-high-yield dividend stock that billionaires were keen to acquire in the third quarter is a real estate investment trust (REIT) called Medical Properties Trust (MPW +1.91%). REITs can avoid paying income taxes by distributing at least 90% of their profits to their shareholders. At recent prices, this REIT offers a juicy 8.8% yield.
During the most recent quarter, Israel Englander and the hedge fund he runs, Millennium Management, bought 2.1 million shares of Medical Properties Trust.
Shares of the REIT currently offer an 8.8% yield, but high yields aren't much good to us if they aren't sustainable. Englander was likely attracted to this stock by its ability to raise its quarterly dividend payout at least once a year since 2013.
Investors can look forward to further payout bumps from Medical Properties Trust because its dividend program appears well funded. Normalized funds from operations (FFO), a proxy for earnings, reached $0.45 per share in the third quarter, which was more than enough to cover a payout currently set at just $0.29 per share.
Englander and any individual investors who buy this stock at recent prices can look forward to more payout bumps even if the global economy falls apart in 2023. Medical Properties Trust owns more hospitals and other acute care facilities than just about anyone.
Hospitals tend to stay busy, regardless of whatever might be happening to the global economy. Moreover, Medical Properties Trust gets its tenants to sign net leases that transfer all the variable costs of hospital ownership, like maintenance and taxes, onto its renters. With a dividend poised to rise steadily on the back of ultra-reliable cash flows, following Englander into this stock looks like a smart move.
2. Annaly Capital Management: 16.1% yield
If you think Medical Properties Trust has a tempting yield, you haven't heard about Annaly Capital Management (NLY 0.71%). This mortgage REIT offers an unimaginable 16.1% yield at the moment.
Annaly Capital Management offers a super-high yield because the market is worried the company will need to sharply reduce its dividend payout soon. Mortgage REITs make a living in the gap between the yields they receive on long-term mortgage-backed securities and the interest they pay out to short-term loans.
The market isn't necessarily worried about mortgage defaults because 91% of Annaly's assets are comprised of mortgages that will be repaid by a government agency if homeowners default. This stock has been under pressure because when interest rates rise, the carrying values of the assets in its portfolio can fall dramatically. Since Annaly uses the mortgage-backed securities in its portfolio to secure short-term loans, lenders could request additional capital if those asset values drop.
Billionaire hedge fund manager James Simons isn't too worried about Annaly having liquidity issues. In the third quarter, his fund, Renaissance Technologies, bought 2.3 million shares of the mortgage REIT. While this is a significant purchase, it's still a very small part of Renaissance's overall holdings. If you'd like to add this stock to your own portfolio, be sure to follow Simons' lead.
