There are lots of ways to put your money to work in the stock market, but few are as consistently successful as buying dividend stocks. It turns out that you don't even need to be very good at picking winners to come out way ahead, either.
During the 50-year period between 1973 and 2022, the average dividend-paying stock in the S&P 500 index that initiated or raised its payout delivered a 10.2% annual return. Over the same time frame, non-dividend-paying stocks in the same index fell by 0.6% annually.
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It stands to reason that investors who seek out better-than-average dividend-paying stocks can outperform the broad market by a mile, and we already know where to look. The latest round of disclosures that institutional investors must make each quarter recently went live. Here are three high-yield dividend stocks that the world's most successful investors bought hand over fist in the first quarter.
1. Bank of America
Warren Buffett and Berkshire Hathaway, the holding company he's managed since 1965, bought a whopping 22.8 million shares of Bank of America (BAC 0.28%) during the first three months of 2023. Before you assume this is Buffett's favorite stock of all time, you should know that New England Asset Management, a Berkshire Hathaway subsidiary, trimmed its position resulting in a net addition of 250,000 shares.
Bank of America had to slash its dividend payout during the global financial crisis of 2008, but the payout has risen an impressive 83% over the past five years. Now, it offers a yield of 3.1%, which is 84% higher than the average dividend-paying stock in the benchmark S&P 500 index.
A recession could cause Bank of America to slash its payout again, but at least this time it's already on solid footing. This megabank generated $27.8 billion in free cash flow over the past 12 months and needed just 31% of this sum to meet its dividend commitment.
Rising interest rates mean net interest income, the difference between interest earned on outstanding loans and interest paid to depositors, climbed 25% in the first quarter to $14.4 billion. Soaring net interest income should make raising its dividend obligation a breeze. Tucking some shares of this bank stock into your portfolio looks like a smart move.
2. AT&T
After spinning off WarnerMedia last year, AT&T (T 1.33%) is back to being mostly a telecoms business, and that has billionaire fund managers excited. Ken Griffin's Citadel Advisers bought 27 million shares, Israel Englander's Millennium Management bought 15 million shares, and Steven Cohen's Point72 fund bought 9.6 million shares of the telecom giant in the first quarter.
Shares of AT&T are down about 18% this year. At this reduced price, the stock offers a juicy 6.7% yield.
The billionaires who bought heavily know that the company's telecom services are as important as they've ever been. In the first three months of 2023, AT&T added more than 400,000 post-paid phone customers for the 11th straight quarter. Also, the AT&T Fiber business added more than 200,000 new customers for the 13th straight quarter.
Unlike the media businesses AT&T no longer runs, new phone and internet subscribers are likely to stick around for a long time. The company's dividend commitment ate through 60% of the free cash flow it generated over the past year.
Reliable cash flows from phone and internet subscribers should allow the company to start raising its dividend payout again. AT&T's dividend probably won't rocket higher but steady growth ahead isn't hard to imagine. Following Griffin, Englander, and Cohen and adding some shares of this stock to your own well-diversified portfolio looks like a smart move.
