When volatility picks up on Wall Street, smart investors typically turn to dividend stocks. That's because publicly traded companies that pay a regular dividend are usually profitable on a recurring basis and have transparent growth outlooks. In other words, they offer the consistency investors look for during periods of market turbulence.
Perhaps more importantly, income stocks have historically crushed those that don't offer a payout over long periods. In 2013, J.P. Morgan Asset Management, a division of money-center bank JPMorgan Chase, released a report showing that companies initiating and growing their payout between 1972 and 2012 averaged a 9.5% annualized return. In comparison, the nonpayers delivered a meager 1.6% annualized return over the same 40-year timeline.
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This outperformance is certainly not lost on billionaire money managers. Based on the latest round of 13F filings -- a 13F is a snapshot that allows investors to see what the brightest money managers bought and sold in the most recent quarter -- billionaires couldn't stop buying two brand-name, high-yielding dividend stocks. Meanwhile, billionaire investors actively avoided another well-known, high-yielding income stock during the first quarter.
High-yield dividend stock No. 1 that billionaires can't stop buying: Ford Motor Company (4.37% yield)
The first supercharged income stock that successful billionaire fund managers couldn't stop mashing the buy button for in the first quarter is auto giant Ford Motor Company (F -1.92%). According to 13F filings with the Securities and Exchange Commission, a half-dozen billionaires were big-time buyers, including:
- John Overdeck and David Siegel of Two Sigma Investments
- Ken Fisher of Fisher Asset Management
- Jim Simons of Renaissance Technologies
- Israel Englander of Millennium Management
- Jeff Yass of Susquehanna International
Keeping things in the same order as listed above, these billionaires oversaw the respective purchase of roughly 21.07 million shares, 3.59 million shares, 3.17 million shares, 1.96 million shares, and 318,000 shares of Ford stock in the March-ended quarter.
Pardon the almost necessary play on words, but what looks to be driving billionaires' interest in Ford is a combination of the company's profitability and its push toward a green future.
The electrification of consumer vehicles and enterprise fleets is the single biggest growth driver for automakers. It will take decades to transition, which means a sizable growth opportunity domestically and abroad. Ford has increased its expected spending on electric vehicles (EVs) and batteries to more than $50 billion through 2026, and has plans to launch an aggregate of 30 new EV models globally by the end of 2025.
Although Ford's EV division is unprofitable at the moment, its traditional (i.e., internal combustion engine) line of vehicles is bringing home the bacon. The company expects to generate "about $6 billion" in adjusted free cash flow this year, which is providing plenty of capital for the company to funnel into next-generation clean vehicles.
Lastly, billionaires almost certainly appreciate the perennial outperformance of the F-Series pickup. Ford's F-Series has been the best-selling truck in America for 46 consecutive years, as well as the top-selling vehicle in the U.S., period, for 41 straight years. F-Series is a high-margin beast that generates plenty of cash flow for Ford.
High-yield dividend stock No. 2 that billionaires can't stop buying: AT&T (6.95% yield)
The other high-yield dividend stock billionaires can't seem to get enough of is telecom company AT&T (T 1.02%). The following three prominent billionaire money managers were aggressive buyers during the first quarter:
- Ken Griffin of Citadel Advisors
- Israel Englander of Millennium Management
- Steven Cohen of Point72 Asset Management
Griffin, Englander, and Cohen respectively bought 27.06 million shares, 15.31 million shares, and 9.61 million shares of AT&T stock for their funds. For Cohen, the 9.61 million-share buy is a new position.
There look to be three well-defined catalysts that called to billionaires during the first quarter.
The first is very simple: the 5G revolution. Following about a decade of 4G LTE download speeds, the rollout of 5G download speeds is encouraging consumers and businesses to upgrade their wireless devices. This isn't going to happen overnight, which means a multiyear period of ongoing device upgrades.
For AT&T, the primary benefit should be a sizable uptick in data consumption. Data plays a big role in lifting the operating margin for AT&T's wireless segment.
Another reason for billionaire investors to be excited about investing in AT&T is the resurgence in broadband demand. AT&T spent a small fortune to acquire mid-band spectrum that it's now using to offer 5G broadband to residential customers and businesses. For five consecutive years, AT&T has added at least 1 million net broadband subscribers. These customers have a high likelihood of bundling their broadband with other services, which is a potential margin boon for AT&T.
Thirdly, AT&T's valuation is potentially turning heads and raising eyebrows. Though AT&T's high-growth days are long gone, it can still slowly but steadily move the sales needle higher. Investors can purchase shares of AT&T for a little over 6 times forward-year earnings right now, which is incredibly cheap for a company doling out a nearly 7% yield.
Image source: U.S. Bank.
The high-yield dividend stock billionaires are avoiding like the plague: U.S. Bancorp (5.84% yield)
However, not all high-yielding dividend stocks were viewed as buys by billionaire money managers during the first quarter. In particular, seven high-profile billionaires ran for the exit with regional bank U.S. Bancorp (USB 0.32%), the parent of the more-familiar U.S. Bank:
- Warren Buffett of Berkshire Hathaway
- Ken Griffin of Citadel Advisors
- John Overdeck and David Siegel of Two Sigma Investments
- Jim Simons of Renaissance Technologies
- Israel Englander of Millennium Management
- Ray Dalio of Bridgewater Associates
In the same order as listed above, these billionaires sold 6.67 million shares, 5.66 million shares, 3.49 million shares, 2.78 million shares, 1.95 million shares, and 608,000 shares of U.S. Bancorp stock.
The primary reason billionaires rang the register on U.S. Bancorp looks to be the now-passed regional banking crisis. A combination of poor foresight on long-dated Treasury bond purchases, coupled with respective withdrawal runs, saw SVB Financial's Silicon Valley Bank, Signature Bank, and First Republic Bank fail. Few regional banks were spared from the emotion-driven downdraft that occurred when these previously high-flying banks were seized by regulators.
However, the pessimism surrounding U.S. Bancorp may be misplaced. Despite the tumult the industry has undergone this year, U.S. Bancorp appears to be well capitalized and saw very minor deposit outflows following the initial failure of SVB.
What's more, the company's management team has historically avoided riskier derivative investments and stuck to the bread-and-butter of banking basics: increasing its loans and deposits over time. It may be a boring strategy, but it's consistently produced some of the highest returns on assets among big U.S. banks.
Best of all, no large bank has been as successful as U.S. Bancorp in getting its users to bank digitally. Online and mobile banking is considerably cheaper than in-person and phone-based interactions. This digital push is having a positive impact on the company's operating efficiency.
