As soon as each quarter, skilled and on a regular basis traders alike are given a chance to look over the proverbial shoulders of Wall Avenue’s high cash managers to see what they have been shopping for or promoting. Wednesday, Feb. 14, marked Type 13F submitting day for the fourth quarter with the Securities and Change Fee.
Though most traders are doubtless fixated on what Wall Avenue’s brightest minds are doing with synthetic intelligence (AI) shares, the under-the-radar strikes made by billionaire traders can typically be much more telling.
The newest spherical of 13Fs, which options buying and selling exercise for the December-ended quarter, detailed a handful of strikes made by profitable billionaire traders in ultra-high-yield dividend shares. I am speaking about publicly traded firms whose yield is not less than 4 instances increased than the benchmark S&P 500.
Whereas two brand-name, ultra-high-yield firms had been purchased hand over fist by billionaires within the fourth quarter, one completely supercharged month-to-month dividend inventory, with a yield north of 15%, was proven the door.
Extremely-high-yield dividend inventory No. 1 billionaires cannot cease shopping for: AT&T (6.54% yield)
The primary high-octane revenue inventory that had billionaire traders wanting to press the purchase button through the fourth quarter is none aside from telecom behemoth AT&T (NYSE: T). A complete of 4 billionaire asset managers made hefty purchases for his or her respective funds, together with (whole shares bought in parenthesis):
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Ken Griffin of Citadel Advisors (29,512,760 shares)
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Israel Englander of Millennium Administration (19,054,972 shares)
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Steven Cohen of Point72 Asset Administration (4,970,954 shares)
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Ray Dalio of Bridgewater Associates (1,143,449 shares)
The lure for these billionaires, except for AT&T’s delectable 6.5% yield, is probably going Wall Avenue’s overreaction to a couple headwinds dealing with the corporate.
For instance, AT&T was clobbered this previous July after a report from The Wall Avenue Journal alleged that legacy telecom operators may face sizable environmental and health-related liabilities tied to their use of lead-sheathed cables. Nevertheless, AT&T countered by noting that its testing hasn’t revealed a well being hazard to individuals or the setting. Even when there’s some type of monetary legal responsibility sooner or later for AT&T, it might nearly definitely be determined in America’s notoriously gradual courtroom system. Briefly, it isn’t one thing traders ought to concern themselves with in the meanwhile.
AT&T was additionally weighed down by the Federal Reserve endeavor its most-aggressive rate-hiking cycle for the reason that early Eighties. Most legacy telecom firms are carrying round a number of debt, which implies future refinancing and/or debt-driven offers might be costlier.
The factor is, AT&T’s stability sheet has markedly improved since divesting content material arm WarnerMedia in April 2022. Over the previous seven quarters, ended Dec. 31, 2023, AT&T’s web debt has declined from $169 billion to $128.9 billion. Whereas there’s nonetheless work to do to enhance the corporate’s monetary flexibility, AT&T’s dividend is undeniably secure.
Lastly, AT&T’s community upgrades have allowed it to learn from the continued 5G revolution. Elevated knowledge consumption is boosting wi-fi section gross sales. In the meantime, the corporate logged its sixth consecutive yr of not less than 1 million web broadband additions in 2023. Broadband prospects are the right goal for high-margin service bundling.
Extremely-high-yield dividend inventory No. 2 billionaires cannot cease shopping for: Pfizer (6.08% yield)
A second ultra-high-yield dividend inventory that billionaire traders had been clamoring to purchase through the December-ended quarter is pharmaceutical juggernaut Pfizer (NYSE: PFE). Three distinguished billionaires considerably added to their fund’s present stakes, together with (whole shares bought in parenthesis):
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Jeff Yass of Susquehanna Worldwide (10,947,182 shares)
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Ken Griffin of Citadel Advisors (9,343,112 shares)
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Israel Englander of Millennium Administration (5,282,369 shares)
Considerably just like AT&T, the lure for Yass, Griffin, and Englander could also be a draw back overreaction by Wall Avenue to Pfizer’s declining gross sales and income following the worst of the COVID-19 pandemic.
There is no query that Pfizer was a main beneficiary of the pandemic, from an working standpoint. In 2022, the corporate bought greater than $56 billion, mixed, of its vaccine (Comirnaty) and its oral therapy (Paxlovid). In 2024, these two therapies are anticipated to generate simply $8 billion in mixed gross sales. This inflating and deflating of Pfizer’s gross sales has had fairly the destructive influence on its share value.
However apparently sufficient, Pfizer’s gross sales continued to develop in 2023 (up 7%), should you exclude the influence of its COVID-19 therapies — and so they’re liable to broaden once more in 2024. Regardless of the proverbial low-hanging fruit from the pandemic being within the rearview mirror, distinctive pricing energy and innovation are persevering with to paved the way.
Moreover, Wall Avenue could also be overreacting to Pfizer’s tempered steerage in 2024 following its acquisition of cancer-drug developer Seagen. Regardless of a $0.40-per-share hit to the corporate’s earnings per share this yr, Pfizer’s acquisition ought to end in long-term value synergies, in addition to meaningfully broaden the corporate’s pipeline and gross sales trajectory in oncology.
Billionaires can also be drawn to the defensive nature of healthcare shares. We do not have the posh of selecting after we grow to be unwell or what ailment(s) we develop. No matter how the U.S. economic system is performing, there’ll at all times be demand for novel therapeutics. This implies constant working money circulation in just about any financial local weather for giant drug firms like Pfizer.
The ultra-high-yield dividend inventory billionaires cannot promote quick sufficient: AGNC Funding (15.19% yield)
Nevertheless, not each supercharged dividend inventory has been on the purchase checklist of Wall Avenue’s most-successful asset managers. Through the fourth quarter, we witnessed 5 well-known billionaires run for the exit from mortgage actual property funding belief (REIT) AGNC Funding (NASDAQ: AGNC), together with (whole shares bought in parenthesis):
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Israel Englander of Millennium Administration (2,332,796 shares)
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Jeff Yass of Susquehanna Worldwide (1,559,922 shares)
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John Overdeck and David Siegel of Two Sigma Investments (1,501,624 shares)
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Ken Griffin of Citadel Advisors (300,555 shares)
The likeliest purpose 4 out of 5 of those billionaires ditched their respective fund’s stakes in AGNC through the fourth quarter — solely Yass’s Susquehanna nonetheless holds a small place — is the yield curve.
Mortgage REITs are extremely delicate to adjustments in rates of interest. Corporations like AGNC need to borrow cash at low short-term charges and use this capital to buy higher-yielding long-term belongings. Quickly rising rates of interest, which might enhance short-term borrowing prices, and inverted yield curves, which reduce web curiosity margin, are likely to disrupt AGNC Funding’s working mannequin. An inverted yield curve is the place short-dated payments maturing in a yr or much less bear increased yields than bonds set to mature in, say, 10 or 30 years.
Through the fourth quarter, the yield inversion between the 10-year Treasury bond and three-month T-bill steepened to ranges not seen since July 2023. A steepening of the yield curve doubtless portends a decline in AGNC’s e book worth and/or a shrinking of its web curiosity margin.
Though billionaires decisively bought AGNC Funding and its whopping 15.2% yield within the fourth quarter, I imagine there could possibly be gentle on the finish of the tunnel for the corporate. Whereas the working efficiency of mortgage REITs would not activate a dime, historical past suggests a normalization of the yield curve before later. When the yield curve does normalize, an growth of the corporate’s web curiosity margin could be anticipated.
Moreover, the Federal Reserve’s quantitative tightening measures imply it is stopped buying mortgage-backed securities (MBS), which is what AGNC primarily invests in. With the nation’s central financial institution out of the best way, it’s going to be far simpler for AGNC to safe higher-yield and profitable MBSs sooner or later.
Better of all, AGNC nearly completely invests its $60.2 billion portfolio into company belongings. “Company” securities are backed by the federal authorities within the occasion of default. This gives some stage of safety to AGNC’s investments and permits the corporate to lever its portfolio to maximise its revenue.
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Sean Williams has positions in AT&T. The Motley Idiot has positions in and recommends Pfizer. The Motley Idiot has a disclosure coverage.
2 Extremely-Excessive-Yield Dividend Shares Billionaires Cannot Cease Shopping for, and 1 They Cannot Promote Quick Sufficient was initially revealed by The Motley Idiot
