Have you ever managed a portfolio successfully enough to attract billions in capital from other investors? If not there's probably a lot you can learn from the professionals who have.
Portfolios managed by Warren Buffett and Ray Dalio added millions of shares of these two dividend-paying stocks in the second quarter. Riding the coattails of these legendary investors has helped plenty of everyday investors get rich themselves.
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We could blindly follow these billionaires into their latest stock purchases, but they'd be the first to warn us that they can't all be zingers. Let's look at what attracted billionaires to these stocks to see if they deserve a place in your portfolio.
Capital One Financial
Warren Buffett and Berkshire Hathaway bought just five stocks in the second quarter, including more than 2.5 million additional shares of Capital One Financial (COF 2.75%). Berkshire was adding to a position it first disclosed this May.
NYSE: COF
Key Data Points
Capital One looks like a bargain right now, with a price at just 8.0 times trailing 12-month earnings. The stock's been beaten down by investors nervous about increasing losses reported by its credit card business. Net charge-offs in the second quarter rose to $2.2 billion, which was 29% more than it reported in the first quarter and 160% more than in the previous-year period.
At the moment, Capital One shares offer a less-than-thrilling 2.3% yield. Capital One's dividend hasn't risen in a straight line, but it is up by 100% over the past decade. If you can think about an investment in the stock on a decade-long timeline, following Buffett's lead is probably the right move.
Interest rates that rose sharply last year are making it harder than usual for most Americans to manage their credit card debts at the moment. The situation could worsen in the quarters ahead, but it's just a matter of time before charge-offs return to normal. There's a good chance that buying some shares of this bank stock at today's prices can lead to market-beating gains for patient investors.
AT&T
Ray Dalio and Bridgewater Associates' largest new stock purchase in the second quarter was for nearly 2 million shares of AT&T (T +0.52%). This might come as a surprise to those of you who recently noticed the stock trading at its lowest price in more than three decades.
NYSE: T
Key Data Points
AT&T slashed its dividend in 2022 after selling off the last of its media assets. The stock has also fallen hard, and at recent prices, it offers a juicy 7.9% yield.
AT&T has disappointed investors for years, but now that it's simply a telecom company again, smart investors like Ray Dalio are expecting steadily rising profits. The company has added more than 6.1 million mobile subscribers over the past two years. Earlier this year, AT&T covered 70 million people with midband 5G service, and this figure should reach 100 million by the end of 2023.
In addition to mobile internet subscribers, AT&T is adding heaps of fiber internet subscribers. The company reported 316,000 AT&T Fiber additions in the second quarter. The big quarter raised net additions up to 2.3 million over the past two years.
Before you pour everything you have into this stock, it's important to remember it could have a $6.8 billion liability on its hands. This is the sum New Street Research estimated AT&T could have to spend to replace all the lead-sheathed copper cables it's buried over the years.
At recent prices, you can buy shares of AT&T for just 6.8 times trailing earnings or 5.8 times forward-looking estimates. This is an appropriate multiple for a business you expect to steadily earn a little bit less each year. With plenty of Americans still gaining coverage for 5G and fiber internet, though, steady gains seem far more likely. Following Dalio's lead and buying at least some shares of this dividend payer looks like a smart move.
