5 Ultra-High Dividend Stocks Hedge Funds Are Betting On

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Dividend stocks are attractive to investors for obvious reasons, as they provide shareholders with regular payments just for owning the stock. Building a portfolio of stable dividend-paying stocks can generate a not-insignificant income that can either be reinvested back into the stocks, compounding the effect, or used for other purposes. Of course, if a stock performs poorly, that could wipe out the benefits of owning it and collecting its dividend payments.

With that in mind, we turn to hedge fund sentiment to help us find the likely outperformers among the ultra-high dividend stocks on the market, which sport annual yields of 7% or more. We know that while hedge funds appreciate dividend payments as much as the next investor, they are holding a stock primarily because they expect good things from it during their planned investment timeline in the stock. We also know from our own research that the top collective stock picks of a group of elite investors like the pool of 730 that we track at Insider Monkey have a greater chance of outperforming the market than a random stock (more on that later).

Thus, we present a list of the five ultra-high dividend stocks that the investors tracked by Insider Monkey have the greatest level of ownership in as of September 30.

#5 Frontier Communications Corp (NASDAQ:FTR)

 – Elite Investors with Long Positions (as of September 30): 33

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $451 million

Frontier Communications Corp (NASDAQ:FTR) is tied with New Residential Investment Corp (NYSE:NRZ) for fourth-place on this list, with 33 investors holding long positions, though it has less money invested in it among those 33 shareholders, at $451 million. It should be noted that there was a notable decline in ownership of  the stock during the third quarter, as 41 investors owned $605 million in shares on June 30. Frontier Communications Corp (NASDAQ:FTR) currently pays a quarterly dividend of $0.105, which gives it an annual yield of 8.28%. Seth Klarman‘s Baupost Group maintained its 13.5 million share position in Frontier throughout the third quarter, while Israel Englander and Steve Cohen each made substantial additions to their large holdings.

#4 New Residential Investment Corp (NYSE:NRZ)

 – Elite Investors with Long Positions (as of September 30): 33

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $675 million

New Residential Investment Corp (NYSE:NRZ) also witnessed a notable decline in hedge fund sentiment during the quarter, falling to 33 shareholders from 38, while the value of their holdings dropped by 24%, outpacing the 14% decline in the company’s shares during the period. The REIT’s dividend yield has soared over the past few months as the stock has dropped, with the most recent quarterly payment of $0.46 providing a gargantuan annual yield of 15.31%. While New Residential Investment Corp (NYSE:NRZ) didn’t rank among billionaire investing legend Leon Cooperman’s top dividend stocks as of October 16, he nonetheless bumped up his holding in the stock by 7% to 7.17 million shares in the third quarter.

Whether elite hedge funds collectively like a stock or not is an important metric to consider, as these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last few years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of the 15 most popular small-cap picks among hedge funds and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by over 53 percentage points (read more details here).

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