In this article, we present to you the 10 Extreme Dividend Stocks with Huge Upside.
Many Americans believe that living off passive income is the ultimate goal and investing in dividend stocks may be the answer to that. We believe that dividend stocks should be integrated into any portfolio for asset growth and risk optimization. In this article, we will focus on extreme dividend stocks with huge upside. In our previous article, 15 Best Dividend Stocks with Upside Potential, we also analyzed dividend stocks with upside potential but those stocks had lower risk and lower yield.
Before we breakdown the list, let me give you a brief background on dividend stocks. Dividend stocks are passive investments where you will be able to collect payment on regular intervals through dividends; monthly, quarterly, annually. Historically when you invested in dividend stocks long enough, you were able to collect regular dividends and enjoyed large capital gains as well. Say for example, in early 2020 Apple’s (AAPL) dividend yield was 1.5%. If you invested during that time, you would have earned 1.5% in dividends annually, but also enjoyed capital gains of more than 100%.
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Choosing the right stock has become more challenging with the arrival of the global pandemic. Which is why it is important to choose a stock with long histories of dividend payments. Often, hedge funds invest in dividend stocks not because they need these dividends but because they think these dividend stocks are undervalued and more likely to outperform the market. Their main goal is to generate capital gains.
Companies that pay dividends are usually stable companies with good financial fundamentals that are committed to rewarding their shareholders even during these times. For example Johnson and Johnson (JNJ) has not only survived in its 133-year history, it has thrived. In April, the company announced a 6.3% hike to its payout in April, $1.01 per share quarterly.
Despite the economic downfall, companies in the S&P 500 paid out $58.28 per share in dividends in 2020, a 0.7% increase compared to last year’s record of $58.24. According to S&P Dow Jones Indices, nearly 84 percent of companies in the S&P 500 index pay dividends.
In line with this, the Federal Reserve is committed to keeping interest rates low for an extended period of time or nearly zero until 2023. We believe the 10-year Treasury bonds’ cumulative yield will be less than the potential average inflation rate for the next 10 years. That’s why we prefer investing in dividend stocks instead of fixed income securities.
In order to identify the 10 Extreme Dividend Stocks with Huge Upside, we started with the 25 holdings in the Global X SuperDividend ETF (SDIV) as of January 6, 2021, and we were able to narrow down our list to 10 stocks by using our hedge fund sentiment scores.
Our in-house analysis shows that we can use the sentiment information gathered from the hedge fund filings to classify in advance a select group of stocks that can beat the S&P 500 index by double digits annually on average. For instance, the portfolio of our monthly newsletter’s stock picks has beaten the market by over 88 percentage points since March 2017 (see the details here). Some of the portfolio holdings of our monthly newsletter have been shared publicly too. In October, we shared this real estate stock and since then, it’s been up nearly 50 percent.
Based on our hedge fund sentiment data, we present to you, the 10 Extreme Dividend Stocks with Huge Upside among the 800+ hedge funds by Insider Monkey:
10. Chimera Investment Corporation (NYSE:CIM)
No of HFs: 20
Total Value of HF Holdings: $80 Million
If you are into real estate investment trusts, you probably have already heard of the tenth extreme dividend stock with huge upside potential, Chimera Investment Corporation. The company focuses on investing directly and indirectly in residential mortgage loans, residential mortgage-backed securities, real estate-related securities, and other asset classes. During the third quarter of 2020, the company reported a GAAP net income of $1.32 per common share.
The top hedge fund holder of this stock is Leon Cooperman’s Omega Advisors, which had over $27 million invested in the stock at the end of September. An insider recently purchased 50,000 shares at around $8. The stock is up 25% since then. CIM offers a 11.86% dividend yield at the moment.
9. Waddell & Reed Financial Inc. (NYSE:WDR)
No of HFs: 21
Total Value of HF Holdings: $116 Million
WDR ranks 9th in our list of the extreme dividend stocks with upside potential. WDR has been around since 1937 and has been a publicly-traded company since 1998. Since the company was founded they have consistently been serving their clients’ financial needs to prepare for the financial future. Recently, the company announced that they have entered a merger agreement with Macquarie Asset Management, under which Macquarie would acquire all outstanding shares of WDR for $25 per share in cash representing total consideration of $1.7 billion.
The top hedge fund holder of this stock is Mario Gabelli’s GAMCO Investors, which had over $19 million invested in the stock at the end of September. WDR current shares are $27 and offer a dividend yield of 4.00%
8. Blackstone Mortgage Trust, Inc. (NYSE:BXMT)
No of HFs: 24
Total Value of HF Holdings: $138 Million
BXMT ranks 8th in our list of the extreme dividend stocks with upside potential. The real estate finance company, Blackstone Mortgage Trust, Inc focuses on senior loans collateralized by commercial properties located in the US and Europe. During the third quarter of 2020, the company reported a quarterly earnings of $0.63 per share as compared to $0.64 per share during the same period of 2019.
The top hedge fund holder of this stock is John Armitage’s Egerton Capital Limited, which had over $87 million invested in the stock at the end of September. BXMT current shares are $26 and offer a dividend yield of 9.37%.
7. Iron Mountain, Inc. (NYSE:IRM)
No of HFs: 25
Total Value of HF Holdings: $112 Million
IRM ranks 7th in our list of the extreme dividend stocks with upside potential. The company is known for providing storage, protection and management for records management, data backup and recovery document management. On December 18, 2020, John Tomovcsik, EVP and COO of IRM announced that he has sold 41,235 shares of the stock at an average price of $29.63 per share. The total sale amounted to $1.2 million.
The top hedge fund holder of this stock is Israel Englander’s Millennium Management, which had over $29 million invested in the stock at the end of September. IRM offers a 8.67% dividend yield at the moment.
6. Artisan Partners Asset Management (NYSE:APAM)
No of HFs: 26
Total Value of HF Holdings: $271 Million
The global investment management firm, Artisan Partners Asset Management offers high value-added investment strategies. They are an investment adviser registered with the US Securities and Exchange Commission. During the third quarter of 2020, the company’s revenue grew 15% compared to the second quarter of the year. You can download a copy of one of their recent investor letters here.
The top hedge fund holder of this stock is Jim Simons’ Renaissance Technologies, which had $102 million invested in the stock at the end of September. An insider purchased 8,075 shares at around $22. The stock is up 136% since then. APAM offers a 6.43% dividend yield at the moment.
5. Annaly Capital Management, Inc. (NYSE:NLY)
No of HFs: 27
Total Value of HF Holdings: $337 Million
The fifth extreme dividend stock with huge upside is NLY. The company is one of the leading diversified capital managers that invests in and finances residential and commercial assets. Recently, the company announced its Board of Directors has authorized a new share repurchase program. The company may repurchase up to $1.5 billion of its outstanding shares of common stock through December 31, 2021.
The top hedge fund holder of this stock is D.E Shaw’s DE Shaw, which had $143 million invested in the stock at the end of September. An insider purchased 200,000 shares at around $5. The stock is up 60% since then. NLY offers a 10.62% dividend yield at the moment.
4. New York Community Bancorp, Inc. (NYSE:NYCB)
No of HFs: 28
Total Value of HF Holdings: $218 Million
Headquartered in Westbury, New York, NYCB operates 225 branches located in New York, New Jersey, Ohio, Florida and Arizona. They are known as one of the leading producers of multi-family loans, focusing on non-luxury rent-regulated buildings that feature below-market rents. During the third quarter of 2020, the company reported assets of $54.9 billion.
Recently, the company announced several changes to its Board of Directors. In the announcement the board’s current non-executive chairman, Dominick Ciampa will remain as a director of both the company and bank boards. President and Chief Executive Officer, Thomas R. Cangemi commented,
“I would like to thank Mr. Ciampa for his service as Non-Executive Chairman for the past 10 years and I look forward to his continued involvement on the Board. Today’s announcement marks the next step in the evolution of the Company’s strong corporate governance practices. The combined experience of each of these directors will provide me and the other Board members valuable insights on a variety of matters as we move forward”.
The top hedge fund holder of this stock is Ken Griffin’s Citadel Investment Group, which had over $93 million invested in the stock at the end of September. An insider purchased 2,000 shares at around $10. The stock has remained the same since then. NYCB offers a 6.24% dividend yield at the moment.
3. Lumen Technologies (NYSE:LUMN)
No of HFs: 31
Total Value of HF Holdings: $762 Million
The third extreme dividend stock with huge upside is Lumen Technologies. The company was formerly known as CenturyLink and they rebranded in September 2020. LUMN offer communications, network services, security and cloud solutions. They are ranked 143 in the Fortune 500.
The top hedge fund holder of this stock is Mason Hawkins’ Southeastern Asset Management, which had over $635 million invested in the stock at the end of September. An insider purchased 265 shares at around $10. The stock has remained the same since then. Here is what Southeastern Asset Management said about LUMN in a 2019 investor letter:
CenturyLink (-19%,-1.72%), the fiber and telecom company, was the primary detractor to first quarter returns after a dividend cut. We were disappointed by that decision and filed a 13-D to enable us to become more active in the investment through seeking to improve the board, encouraging opportunistic asset sales and exploring creating tracking stocks for the company’s two segments. Private-market transactions of assets comparable to some of CenturyLink’s (CTL) fiber assets have been over 15X EBITDA, far above CTL’s depressed 5X EBITDA stock price. In addition to monetizing some of this fiber, separating the enterprise and consumer segments into distinct tracking stocks could help highlight the values and different opportunity sets for both. We believe that adding board members with experience in fiber and financial transactions can bring additional capital allocation discipline to drive value recognition. We maintain our support for Jeff Storey and his team operationally even while disagreeing about some capital allocation items. Storey bought $1 million in shares personally in the quarter, and CFO Neel Dev, as well as multiple directors, also increased their ownership of the stock.
2. Williams Companies Inc. (NYSE:WMB)
No of HFs: 38
Total Value of HF Holdings: $581 Million
WMB was mentioned as one of the 12 Best MLP and Pipeline Stocks to Buy Now. They are focused on natural gas processing and transportation. During the third quarter of 2020, the company announced a quarterly earnings of $0.27 per share. The company recently announced Ms. Stacey Dore as an independent director on the Board. She was a former senior vice president and general counsel of a publicly-traded real estate and investment trust that owned electric transmission assets. Chairman of the Board, Stephen W. Bergstrom said,
“We are excited to add Stacey’s broad experience to the Board as we further position Williams as a leader in the clean energy economy. We believe Stacey’s business acumen and analytical skills will benefit future decisions of the Williams Board as we execute our mission of delivering long-term value and growth for the company and its shareholders.”
The top hedge fund holder of this stock is Mason Hawkins’ Southeastern Asset Management, which had over $179 million invested in the stock at the end of September. An insider purchased 1,100 shares at around $13. The stock is up 61% since then. WMB offers a 7.51% dividend yield at the moment.
1. Altria Group, Inc. (NYSE:MO)
No of HFs: 47
Total Value of HF Holdings: $1.25 Billion
Altria tops our list of extreme dividend stocks with huge upside. MO is known as the world’s largest producer of tobacco, cigarettes and related products. And owns several largest cigarette companies including Philip Morris and John Middleton. The company ranks 23rd in the fortune 500. They were mentioned in the Top 10 Sin Stocks to Buy Now and in the 5 Dividend Stocks to Boost Cash Flow in 2021.
The top hedge fund holder of this stock is Jim Simons’ Renaissance Technologies, which had over $352 million invested in the stock at the end of September. An insider purchased 11,500 shares at around $40. The stock was up 2% since then. MO offers a 8.27% dividend yield at the moment.
Check out an article where Artko Capital mentioned that the stock’s low growth was not going to get them the returns they seek.
“Altria Group (MO) – We made an 9% Core Portfolio investment in Altria group at sub $40.00 in 2019 with the view that it was a good place to park cash at an 8%+ dividend yield with liquidity and a 15- 25% annual IRR upside. When the stock reached $50+ in early 2020 we took half of our position off the table and took the rest off back at $40 in the spring 2020 as we are positioning our portfolio to have significantly higher upside in the nanocap space as the economy and the small cap markets recover over the next few years. We may come back to MO in the future as it is a solid dividend yielding investment, but as we mentioned earlier, our strategy does involve off-the-beaten-path companies with an opportunity to get repriced on growth of revenues and earnings and Altria Group’s low growth was not going to get us the returns we seek given the repricing of the value segment of the small cap markets.”
Please also see 15 Best Dividend Stocks with Upside Potential and 10 Best Dividend Stocks for Passive Income
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Disclosure: No positions. 10 Extreme Dividend Stocks With Upside is originally published at Insider Monkey.
