Everyday investors looking for ways to beef up their passive income stream want to turn their attention toward billionaire fund managers.
Following the actions of billionaires might be easier than you imagine. Thanks to the U.S. Securities and Exchanges Commission and its disclosure requirements, we're all just a few clicks away from seeing what the world's most successful money managers buy and sell every three months.
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Individual investors can learn a lot by studying the actions of billionaire fund managers with heaps more experience. Unfortunately, even the most successful investors can get it wrong sometimes. Here's a closer look at some recent high-profile stock picks to see if they still look like smart stocks to buy.
Hercules Capital
Hercules Capital (HTGC +2.05%) is a business development company (BDC) that allows individual investors to take part in the previously elusive world of venture capital investing. Since its inception about 21 years ago, it has committed more than $19 billion to hundreds of startups in various technology and life science industries.
NYSE: HTGC
Key Data Points
Even billionaires with the means to dabble in venture capital are buying shares of Hercules Capital. Ken Griffin and Citadel Advisors purchased 161,891 shares of the BDC during the last three months of 2023.
Many of Hercules Capital's bets don't work out but the ones that do more than offset the losses. For example, the BDC invested in Palantir a few years before its initial public offering (IPO) in 2020. Palantir has since become a software giant worth more than $51 billion at recent prices.
Most BDCs act as simple lenders, but Hercules Capital's investments usually include equity stakes that have highly unpredictable values. To smooth out a lumpy bottom line, the company offers investors supplemental dividend payments in addition to a regular cash dividend.
Hercules Capital's combination of regular and supplemental dividends currently works out to a quarterly payment of $0.48 per share. If its dividend payouts hold steady, investors who buy at recent prices will receive a hefty 10% annual yield.
With such a high upfront yield the stock doesn't need to raise its payout to provide a market-beating return. That said, dividend increases seem likely. Hercules made a record level of new commitments during the first quarter. Hercules also has a solid track record of raising its regular quarterly payout, which has grown steadily since 2010.
AT&T
AT&T (T +0.42%) is getting a lot more attention from income-seeking investors now that it's spun off its unpredictable media assets. It slashed its dividend in 2022 to compensate for the spin-off of its media assets. At recent prices, the stock offers a 6.6% yield.
NYSE: T
Key Data Points
During the last three months of 2023, Steven Cohen and Point72 Asset Management more than doubled an existing position by purchasing nearly 5 million shares, and this was a relatively small bet. Israel Englander and Citadel Advisors bought over 19 million shares of AT&T in the fourth quarter.
For years, AT&T's wireline phone and internet subscribers have been canceling their subscriptions. Luckily, many have signed up for AT&T's fiber optic internet service. In the first quarter, the company added 252,000 fiber customers, which raised the total to 8.6 million.
AT&T shareholders can look forward to a steadily growing base of broadband subscribers. Last year, the company finally launched a fixed wireless broadband service that taps into its fifth-generation (5G) wireless network. Since T-Mobile acquired Sprint in 2020, Americans have had just three 5G networks to choose from.
Increasing broadband subscribers drove free cash flow to a healthy $21.9 billion over the past 12 months. Over that time frame, the company needed just 37% of the free cash flow its operations generated to meet its dividend commitment.
AT&T has held its dividend steady since 2022 to help reduce its enormous debt load. With growing contributions from broadband subscribers, it could begin announcing significant annual payout raises again in another year or two. Following billionaire fund managers and adding some shares of this stock to a diversified portfolio probably isn't a bad idea.
