Michael Burry isn't exactly known for being a pure dividend investor. Rather, Burry got famous for his bets against the housing market right before the Great Recession, yielding Burry and his fund at the time tremendous profits.
Burry's call, which very few investors got right, was portrayed in the star-studded movie The Big Short, where Burry himself was played by Christian Bale. Recently, Burry's fund Scion Asset Management bought several bank stocks with strong dividend yields in the first quarter of the year that are set to rake in more than $1 million in annual income. Let's take a look.
Burry bought the dip in bank stocks
Bank stocks have gotten creamed since the failures of several prominent banks in March, and Burry, ever the contrarian, bought the dip in some of the hardest-hit stocks in the sector, including Western Alliance (WAL -0.90%), whose stock has fallen more than 50% since early March.
Burry also purchased shares of several other bank stocks, including New York Community Bancorp (NYCB 2.46%), Huntington Bancshares (HBAN -0.38%), and Wells Fargo (WFC 0.89%). Most of these names have seen their dividend yields rise as their shares have declined.
Data source: YCharts HBAN Dividend Yield
New York Community Bancorp, in particular, is sporting a 6.4% yield, and that's after shares have risen more than 20% this year. The company benefited from its acquisition of the assets of the failed Signature Bank.
The deal gave New York Community Bancorp significant cash that it can use to pay down higher-cost borrowings, which will improve its margin and earnings throughout the course of the year. While the dividend may have been in some question before the deal, management expressed optimism on the bank's recent earnings call about the bank's capital levels and current dividend.
Huntington's dividend looks solid as well, with a dividend payout ratio of slightly more that 42%, which is right in the middle of its peer group. Furthermore, the bank has a strong deposit base that should be a source of strength as the industry deals with funding pressure.
Finally, Wells Fargo has begun to build back its dividend after a huge cut during the beginning of the pandemic, but the bank is in a great capital position, so I think Wells Fargo can continue to raise the dividend if it wants. I'm guessing Burry didn't think twice about the bank's dividend when he bought the stock because many believe Wells Fargo is nearing an end to its long-standing regulatory issues, which would be great for the stock.
A nice recurring stream of revenue
To calculate each of these banks' annual dividend income, I annualized each bank's quarterly dividend and multiplied it by the number of shares Scion purchased:
New York Community Bancorp - 850,000 x 0.68 = $578,000
Huntington Bancshares -184,900 x 0.60 = $110,940
Western Alliance - 125,000 x 1.44 = $180,000
Wells Fargo - 125,000 x 1.20 = $150,000
The total amount of dividend income Burry will receive from these four stocks each year is nearly $1.02 million. Bank stocks are known for having solid dividends, and the sell-off in the sector has also presented a lot of opportunities in my view, so I think Burry and Scion are poised to see some nice growth from many of these stocks while also generating solid passive income along the way.
