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).
#3 BP plc (ADR) (NYSE:BP)
– Elite Investors with Long Positions (as of September 30): 35
– Aggregate Value of Elite Investors’ Holdings (as of September 30): $968 million
BP plc (ADR) (NYSE:BP) lands in third, although the investors tracked by Insider Monkey own just 1% of its shares as of September 30. BP currently pays a $0.60 quarterly dividend on those shares, representing a yield of 7.36%. Shares of BP have rebounded from their awful third quarter with a solid fourth quarter, although they dipped by 6% this week, including a nearly 2% fall on Friday after OPEC announced there would be no oil production cut, which sent U.S crude down by 2.7% and Brent down by 1.8%. We recently suggested that BP’s dividend is likely safe in the short-term, but that it could be at risk in the longer-term if oil prices remain depressed, although BP could sell non-core assets to cover the payments. Pzena Investment Management and the Bill & Melinda Gates Foundation Trust made cuts to their BP plc (ADR) (NYSE:BP) holdings in the third quarter but remained the top shareholders of the stock in our database, owning 9.74 million shares and 6.13 million shares respectively.
#2 Colony Capital Inc (NYSE:CLNY)
– Elite Investors with Long Positions (as of September 30): 36
– Aggregate Value of Elite Investors’ Holdings (as of September 30): $594 million
In contrast to BP, 27% of Colony Capital Inc (NYSE:CLNY)’s shares were owned by the investors in our database on September 30. However, there was a 23% flight of capital from the stock during the third quarter, even though ownership remained steady at 36 funds. Shares dropped by about 14% during that time, accounting for a portion of the decline. Colony Capital Inc (NYSE:CLNY) recently announced a hike in its quarterly dividend payment to $0.40, an annual yield of 7.97%. The ex-dividend date for that first $0.40 payment is on December 29. As Colony Capital (formerly Colony Financial) has yet to cut its dividend in five years as a public, dividend-paying company and its earnings continue to be solid, there’s no reason to suspect the dividend is in any danger of a cut any time soon. With a price-to-book ratio of 0.8 and a forward P/E of just 9.70, the stock also looks attractively-priced. It’s down by 16% this year after a strong three-year run where it gained over 50% while also paying out those nice dividends. Emanuel Friedman‘s EJF Capital, which primarily invests in real estate and financial stocks, has both Colony Capital and New Residential Investment Corp among its top five picks.
#1 Kinder Morgan Inc (NYSE:KMI)
– Elite Investors with Long Positions (as of September 30): 72
– Aggregate Value of Elite Investors’ Holdings (as of September 30): $1.83 billion
Lastly is Kinder Morgan Inc (NYSE:KMI), which is by far the most popular stock on this list. It also increased in popularity during the third quarter, being included in the portfolios of 72 investors that we track, up from 64 at the end of June. As with BP however, those investors were underweight KMI, owning just 3% of its shares. Kinder Morgan has had an even rougher week than BP, as in addition to the oil price decline, it’s been dealing with some additional headwinds of its own, including Moody’s downgrading its credit rating. Shares have contracted by nearly 30% this week alone, which has had the effect of pushing Kinder Morgan Inc (NYSE:KMI)’s dividend yield to an eye-opening 12.13%. However, that robust dividend could be in danger, as KMI released a statement on Friday disclosing that its dividend policy will be reviewed in the coming days, although it also stated that it should have the ability to make its dividend payments in 2016. However, it may cut the dividend anyway, in an effort to repair its damaged credit rating. The quant funds D E Shaw and Renaissance Technologies were both high on Kinder Morgan in the third quarter, making big additions to their KMI holdings, lifting them to 2.89 million shares and 2.26 million shares respectively.