About 30 years ago, investors had more than 8,000 stocks to choose from in the market. Today there are fewer than 3,750 publicly traded companies. Yet even with the universe of stocks cut by more than half, it’s still a daunting task to wade through the list to find an investment.
That’s why riding the coattails of the smart money can be worthwhile. Finding the stocks billionaire investors are buying is a good exercise. It doesn’t mean blindly following their picks but it narrows down that universe to a more manageable level. And when we see what they’re buying, oftentimes it is dividend stocks. While Warren Buffett won’t let Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) pay a dividend, he loves buying income-generating stocks and collecting those dividend checks.
There is good reason investing gurus buy dividend payers. The companies are routinely profitable, have a long track-record of success, and have been battle-tested in the crucible of numerous business and economic cycles. These are Grade A companies.
But don’t go chasing yield. The asset managers at Hartford Funds looked at the performance of the benchmark S&P 500 going back to 1930. They found dividend stocks handily outperformed non-payers by a wide margin. That’s likely caught the attention of the asset managers who have been big buyers of dividend payers.
The following three ultra-high-yield stocks (with yields between three to four times the S&P 500 average) are billionaire favorites. They must be because they keep buying shares.
Realty Income (O)
Commercial real estate investment trust Realty Income (NYSE:O) is an income-investors dream stock. The REIT pays its dividend monthly and it yields 5.5% annually. The latest income check sent out was the 642nd consecutive payment made in Realty Income’s 54-year history. It was also the 123rd time the REIT hiked its payout since going public in 1994 and the 105th consecutive quarterly increase.
Even though O stock is down 17% in the last year it’s still a solid choice for investors. It has high-quality tenants that offer little risk of not paying their rent. Companies like Dollar General (NYSE:DG), Walmart (NYSE:WMT) and 7-Eleven are among its top-tier tenants.
The stock is down, though, because of the rapid rise in interest rates, shaky financial markets, and concerns about the real estate market. While its tenants aren’t a problem, the ability and cost of getting a loan has become more difficult and expensive. Because REITs are required to distribute 90% of their profits to investors little is left over for investing in the business. That means they must borrow money or issue stock. Their capital costs increase but Realty Income is financially sound.
That likely attracted Andrew Duffy of Ranger Global Real Estate Advisors who boosted his holdings over 500%. It brings the total value of his stake to $22.7 million. Investors buying in now stand an excellent change of reaping significant capital appreciation and income growth.
Simon Property Group (SPG)
Malls are back, baby! And they have Gen Z of all people to thank for it. Data from CM Group says nearly half of all 16- to 26-year-olds prefer shopping in brick-and-mortar retail stores to buying online. That’s underscored by research from location analytics firm Placer.ai which found mall traffic jumped 33% between 2022 and 2023. They noted mall shoppers are younger, more diverse, and wealthier than other groups. All of which benefits premiere shopping mall owner and operator Simon Property Group (NYSE:SPG).
Simon is a REIT with 230 properties comprising 183 million square feet of retail space. It also owns 84% of Taubman Realty Group which owns 24 outlet malls, and it has a 22% interest in French mall owner Klepierre.
Malls battered by the pandemic also got rid of weak retailers and operators. The openings created opportunities for stronger retailers to expand. Simon said year to date it has signed over 3,500 new leases which it expects to generate over $1 billion in revenue. The “retail apocalypse” was upon the industry but now it’s in the midst of a renaissance. The decline didn’t dent Simon’s dividend history though. It has reliably paid a dividend since 1994. It yields 5.3% today.
Hedge fund operator Elizabeth Foreman of Cunning Capital Partners doubled her stake in Simon Property Group to $1.4 million. Charles David of Wexford Capital also increased his position 25% to $1.3 million. It’s clear the smart money has its eye on the shopping mall.
Universal (UVV)
Universal (NYSE:UVV) is not a REIT but rather the world’s largest exporter and importer of tobacco leaf. It counts all of the biggest cigarette manufacturers as customers, including the global behemoth China Tobacco International. China is the world’s biggest consumer of cigarettes, selling 2.4 trillion units or more than the next 67 largest countries combined.
Universal enjoys significant pricing power as inventories remain tight and demand for all types of tobacco is high. Sales are up 7% in the first half of fiscal 2024 while operating profits surged 30% year-over-year.
UVV stock is up 10% over the past 12 months but is down 12% so far this year. This under-the-radar stock is actually a Dividend King as it has an unbroken 51-year record of raising the payout which yields 5.4% currently. Richard Pzena of Pzena Investment Management certainly likes collecting his dividend check. He recently increased his holdings by 19% and now his stake is worth $52.8 million.
So while smoking in the U.S. is in a secular decline, it’s flourishing in other parts of the world. An investment in Universal today will continue to capitalize on this growth for years to come.
On the date of publication, Rich Duprey held a LONG position in O stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
