If you want to learn to become a better golfer, you can watch professionals compete, but the same can't be said for investing. Billionaire investors spend most of their time learning about the companies and industries they invest in, which doesn't make for great television.
Everyday investors might not get to watch billionaire money managers perform their craft for a live audience, but they can come close. Every three months, the U.S. Securities and Exchange Commission requires nearly anyone who manages more than $100 million in assets to disclose their trading activity.
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In the third quarter, we saw a handful of billionaire money managers buy up millions of shares of two ultra-high-yield dividend stocks.
The billionaires who manage the funds that bought these stocks will be the first to warn you that they make hundreds of trades every quarter, and they can't all be zingers. Here's a closer look at these businesses to see if following in the footsteps of billionaire money managers is the right move for your portfolio.
1. AGNC Investment Corp
Shares of AGNC Investment (AGNC 0.97%) offer a mind-blowing 14.4% yield at recent prices. This is a real estate investment trust (REIT) that doesn't own any real estate. Instead of collecting rent from tenants, it buys mortgage-backed securities that offer higher rates of return than its costs of capital.
An eye-popping yield likely inspired Jeff Yass of Susquehanna to buy 1.4 million shares of AGNC in the third quarter. Yass isn't the only billionaire placing bets on this mortgage REIT. John Overdeck and David Siegel of Two Sigma Investments scooped up 1.2 million shares.
As its name implies, AGNC invests in mortgage-backed securities that are backed by a government agency in the event of a default. With the U.S. government guaranteeing each mortgage in the securities it buys, incoming cash flows are hyper-reliable.
While AGNC's incoming cash flows are generally reliable, the company lost $0.68 per share in the third quarter because interest expenses rose sharply in 2022 and early 2023.
Most income-seeking investors avoid AGNC stock and mortgage REITs in general because their interest expenses can rise sharply for reasons beyond their control. For example, rising interest rates can quickly lower the value of the mortgage-backed securities they use as collateral.
With less collateral to offer, lenders could demand higher interest rates or worse. When mortgage-backed security values fall too fast, mREITs like AGNC can be forced to sell their assets at fire sale prices.
Investors with a long-term mindset will notice that AGNC has lowered its payout by one-third over the past five years. Buying this stock made sense for billionaires with diverse portfolios managed by a team of professionals. For everyday investors who need a reliable passive income stream, though, it's probably best to steer clear of this mREIT and others like it.
2. Medical Properties Trust
Medical Properties Trust (MPW -1.10%) is a REIT that specializes in hospitals and related facilities. At recent prices, the stock offers an eye-popping 12% yield.
This huge yield inspired Philippe Laffont and Coatue Management to buy 5.7 million shares of the stock in the third quarter. Israel Englander and the fund he runs, Millennium Management, bought 3.3 million shares.
This REIT has a diverse portfolio of 441 buildings spread throughout the U.S. and nine other countries. Medical Properties Trust usually gets hospital operators to sign long-term net leases that transfer all the variable costs of building ownership, such as taxes and maintenance, to tenants.
The crucial role hospitals play in their communities, plus the use of net leases, should make Medical Properties Trust's cash flows hyper-reliable, but this hasn't been the case. A handful of large tenants that are having trouble making ends meet caused the company to slash its payout by 48% in September.
Medical Properties Trust has a fairly diverse portfolio managed by 55 hospital operators. Unfortunately, nearly one-fifth of its assets are leased by Steward Health, which has been having a rough time lately. In November, we learned that Steward was late paying rent for September and October.
Steward's situation could become even more challenging in 2024. The U.S. Department of Justice recently filed a complaint that alleges false claims, and it isn't the first time. Steward and related entities agreed to pay $4.7 million to settle a false claims violation in 2022.
Medical Properties Trust's biggest tenant looks like a mess, but it probably won't prevent it from meeting its recently reduced dividend obligation. Adjusted funds from operations (FFO), a proxy for earnings used to evaluate REITs, came in at $0.30 per share during the third quarter. That's twice as much as it needed to make its latest dividend payment, which is set at $0.15 per share.
Taking a chance on this REIT isn't a bad idea for income-seeking investors with lots of time ahead of their retirement. If you're already retired and need highly reliable dividend payments, though, it's probably best to keep looking.
