If you want to perfect your pickleball game, you'd probably start by watching reruns of Parris Todd dominating the U.S. Open Championship.
The same concept applies to investing, except instead of watching a sporting event on your television, you need to look up something the U.S. Securities and Exchange Commission (SEC) calls a 13F form.
Image source: Getty Images.
Just about any person or entity that manages more than $100 million in assets needs to disclose their trades each quarter. During the first three months of 2023, billionaire money managers were buying dividend stocks like they were going out of style.
It's not hard to understand why billionaires were after dividend-paying stocks. It's a well-established fact that they outperform shares of companies that aren't committed to delivering a portion of their profits to shareholders. During the 50-year period that ended in 2022, shares of dividend payers in the S&P 500 index delivered a 9.2% average annual return. Over the same time frame, non-dividend payers actually fell by 0.6% per year on average.
It stands to reason that the dividend stocks the world's most successful investors pick are likely to outperform. That said, everyone makes mistakes from time to time. Let's take a closer look at two stocks billionaires can't get enough of to see if they deserve a place in your portfolio too.
AT&T: A 6.9% yield
Many income-seeking investors have been avoiding AT&T (T 1.02%) stock because they remember how the company slashed its payout by 47% last year. What you might not realize is that the business has been through a major overhaul that should make future growth far more predictable.
Cash-flow predictability likely encouraged Israel Englander of Millennium Management to buy more than 15 million shares of AT&T during the first quarter of 2023. Ken Griffin of Citadel Advisors also splashed out on AT&T by purchasing over 27 million shares of the telecom stock.
Over the past year, AT&T used a little less than 60% of the free cash flow its operation generated to meet its dividend commitment. Raising the well-funded dividend payout at the same pace as earnings growth should be a breeze in the years to come.
Americans are generally hesitant to change their internet providers, but plenty are signing up for AT&T Fiber. The company added 272,000 net-fiber subscribers in Q1, which was the 13th consecutive quarter with more than 200,000 net adds.
According to AT&T, the fiber connections it's rapidly setting up are less expensive to maintain than the legacy wireline connections they replace. With plenty of potential new subscribers to reach, this high-yield dividend could rise steadily for many years to come. Following Griffin and Englander looks like the right move.
Pfizer: A 4.5% yield
Pfizer (PFE 0.55%) gained a lot of fame for rapidly developing a COVID-19 vaccine and an antiviral treatment that generated a combined $56.7 billion in sales last year.
Investors seeking a growing source of passive income might want to follow the legendary founder and CEO of Renaissance Technologies, James Simons. His fund increased its Pfizer holdings by more than 1,000% in Q1 by purchasing over 11 million shares.
Comirnaty and Paxlovid sales are expected to fall from $56.7 billion in 2022 to just $21.5 billion this year. Investors should know that these two drugs alone aren't why Simons bought the stock hand over fist. He's likely more interested in all the new blockbuster drugs emerging from Pfizer's development pipeline.
In the month of June alone, the U.S. Food and Drug Administration (FDA) approved two new drugs from Pfizer. The FDA greenlighted Litfulo, the first and only treatment for severe alopecia areata. The agency also approved Ngenla, a once-weekly human growth hormone analog for undersized pediatric patients.
Late last year, the FDA began reviewing an application for a potential new ulcerative colitis treatment called etrasimod. Analysts expect over $1 billion in annual sales within a few years of etrasimod's launch, which could happen before the end of 2023. Following Simons and buying some Pfizer shares could lead to a growing source of passive income that keeps rising throughout your retirement years.
