At any given time, you can find at least a handful of dividend-paying stocks that offer ultra-high yields. Unfortunately, the stock market rarely allows dividend yields to rise so high unless there are reasons to expect trouble ahead for the underlying businesses.
Since 1928, the S&P 500 index has delivered a total return that works out to 9.7% annually, on average. Thousands of hedge fund managers try to beat this figure, but relatively few do so consistently enough to grow their personal wealth beyond $1 billion.
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In the first quarter of this year, a handful of billionaire investors bet heavily on Medical Properties Trust (MPW +1.39%) and AGNC Investment (AGNC 0.56%). Both of these stocks offer yields above 11%, so the billionaires who bought them could realize market-beating returns if the underlying businesses can maintain their payouts over the long run.
Let's look a little closer at the ultra-high-yield dividend stocks billionaires have been snapping up to see if everyday investors can rely on them to continue meeting their dividend obligations.
1. Medical Properties Trust
Shares of Medical Properties Trust have tumbled about 49% from their peak in late 2023. The market has been responding as you would expect to the company's 48% dividend reduction last year, as well as a string of upsetting news regarding its biggest revenue stream.
NYSE: MPW
Key Data Points
Medical Properties Trust offers a huge 11.9% dividend yield at recent prices. The company reported heavy losses in the first quarter, but more than a few billionaires bought heaps of shares with expectations the company could pull itself out of the trouble it's in. John Overdeck and Two Sigma Investments initiated a new position with 2.58 million shares. Jeff Yass from Susquehanna more than doubled its position by acquiring 2.34 million shares in the first quarter.
Medical Properties Trust is a real estate investment trust (REIT) that specializes in hospitals and other acute care facilities. Its cash flows should be reliable because it's a net lease REIT that doesn't operate its properties. Unfortunately, its largest operator, Steward Health Care, filed for bankruptcy on May 6 after missing rent payments on various facilities for several quarters.
There's a slight chance Medical Properties Trust could maintain its dividend payout, but it doesn't seem likely. At the end of 2023, the REIT relied on Steward for more than 20% of total rental revenue.
Yass and Overdeck bought millions of Medical Properties Trust's shares, but those positions make up less than 1% of their total portfolios. If you insist on following billionaires into this high-risk stock, limit your exposure to an amount you can easily afford to lose like they did.
2. AGNC Investment
AGNC Investment is a mortgage REIT that makes dividend payments every month. At recent prices, the stock offers a mind-blowing 14.6% yield.
NASDAQ: AGNC
Key Data Points
Eager to secure heaps worth of monthly dividend payments, David Siegel and Two Sigma Investments opened a new position with 3.08 million shares during the first quarter. Israel Englander and Millennium Management also opened a new position by acquiring 1.57 million shares.
AGNC Investment borrows at relatively low short-term rates and uses the capital to buy longer-term mortgage-backed securities that hopefully offer a much higher yield. Investors don't have to worry much about individual bankruptcies because over 98% of the assets in its portfolio are backed by a government agency.
This mortgage REIT isn't very sensitive to the actions of individual borrowers, but swiftly rising interest rates greatly reduced the value of its assets in 2022. Siegel and Englander must expect the Federal Reserve to lower rates or at least hold them steady over the next several months. If they're right, this stock will most likely deliver market-beating gains for folks who buy at recent prices.
Unfortunately, there are no guarantees that the Federal Reserve won't have to raise rates even further, which could make it much harder for AGNC to maintain its payout. Again, if you're going to follow the billionaires who bought this stock in the first quarter, it's best to limit your exposure.
