David Tepper's net worth stands at $20.6 billion. The hedge fund manager isn't an income investor for one simple reason: He doesn't need the income.
However, Tepper's Appaloosa hedge fund sometimes owns stocks that many income investors would probably find attractive. The billionaire bought one high-yield dividend stock in the second quarter of 2024 and sold another. Should you follow his lead?
Two high-yield stocks Tepper bought and sold in Q2
Tepper bought 5,000 shares of United Parcel Service (UPS +0.42%) in Q2. This move increased Appaloosa's stake in the package delivery and logistics company by 0.83%.
NYSE: UPS
Key Data Points
The hedge fund first initiated a position in UPS in the fourth quarter of 2023 with 500,000 shares. Tepper bought another 100,000 shares in the first quarter of 2024, boosting Appaloosa's stake by 20%.
However, he wasn't so bullish about another high-yield dividend stock -- Energy Transfer (ET +0.84%). Tepper cut Appaloosa's stake in the midstream energy company by nearly 10.9% in Q2.
NYSE: ET
Key Data Points
This move followed the hedge fund's sale of 1.14 million shares of Energy Transfer in Q1. But Appaloosa's position in the stock has increased and decreased multiple times since Tepper first bought it in the second quarter of 2017.
Tepper's potential reasoning
Why did Tepper buy UPS and sell Energy Transfer? We can only guess at his potential reasoning behind the transactions.
There is one thing we can safely rule out. Tepper can't complain about the dividends of either of these stocks. UPS' forward dividend yield tops 5%. Energy Transfer's distribution yields nearly 8%. Both stocks' yields were also attractive throughout Q2.
Tepper could have viewed UPS as a great turnaround play. The stock has plunged more than 44% below its peak set in early 2022. However, UPS's U.S. shipping volumes rose in Q2 after more than two years of quarterly declines. CEO Carol Tomé predicts that the company will return to earnings growth in the second half of 2024.
As for Energy Transfer, perhaps Tepper opted to take some profits off the table. The stock was up around 17% year to date in early May, close to where it is now. Energy Transfer has jumped 70% over the last three years.
Should you buy UPS and sell Energy Transfer, too?
Tepper's decision to buy UPS seems smart, in my view. I recently initiated a new position in the stock too and think the stock is a great pick, especially for income investors.
As previously mentioned, UPS offers a juicy dividend yield. The company has increased its dividend payout for 15 years. Management appears to be committed to growing the dividend in the future.
I like that UPS' business seems to be turning the corner. Its bottom line should improve as the company moves past the higher initial costs associated with its union deal negotiated in 2023.
However, I don't think investors should sell Energy Transfer. It's attractively valued with a forward earnings multiple of around 10. The company is growing both organically and through acquisitions. Its ultra-high distribution yield makes it relatively easy for Energy Transfer to deliver exceptional total returns. In my opinion, Energy Transfer is a stock to buy right now instead of sell.
