5 Ultra High Dividend Stocks Hedge Funds Are Piling On

Investing in dividend stocks can be a profitable strategy to build wealth, and especially, to build a decent portfolio for retirement. Because of the stability of most dividend stocks, an investor can estimate the cash flow that a portfolio will generate, which is helpful once dividend payments replace paychecks as an investor’s sole means of income. On the other hand, the same cash flow stability can be provided by bonds, which are less risky (a bankrupt company will first repay its debtholders before its shareholders) or even risk-free (government bonds). However, investing in dividend stocks provides more liquidity and can also provide investors with a premium due to the stock’s appreciating value. In addition, in a low-interest-rate environment, investing in bonds is less rewarding than investing in dividend stocks. So in the end, the question of whether to invest in dividend stocks or bonds has to take into account the risk-awareness and the investment horizon, though literature generally suggests investing in a mix of the two.

Buying high dividend stocks has its advantages over high growth stocks. Companies that are not paying dividends are reinvesting all of their profits into their business instead of paying off shareholders, which can generate even more shareholder value in the future if things go smoothly. However, companies that are paying dividends are usually well-established and have solid financial positions. Moreover, they are committed to rewarding their shareholders even in troubled times. For example, Johnson & Johnson (NYSE:JNJ) paid dividends (and even increased them) during the financial crisis (2007-2009).

If an investor decides to add some dividend stocks to his/her portfolio, the question is: which ones to choose? There are dividend aristocrats, which are companies that have increased their dividends every year for at least 25 years, and dividend kings, which have raised their dividends for at least 50 years in a row. Another choice is to invest in an ETF that focuses on dividend stocks, like the Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), which will provide exposure to a basket of dividend stocks.

However, there also are some ultra high dividend stocks that the broader public is less familiar with, because the media usually talks about large and well-known companies. These stocks, aside from sporting sky-high dividend yields, also have the potential to appreciate greatly in value due to their growing businesses. However, they can also be more volatile and risky. In any case, investing in these stocks requires a lot of research. Nevertheless, there is a way to benefit from the research that was done by someone else, that being hedge funds and other large institutional investors, which employ a lot of resources when determining which stocks to invest in.

In this way, following hedge funds into their dividend stocks can be a good strategy to beat the market. Here’s where our research can come in handy. We follow some of the best-performing hedge funds and other institutional investors and analyze their quarterly 13F filings to identify the stocks that they are collectively bullish on. We use the data to compile a portfolio that we share with our premium subscribers. Our flagship strategy has gained 44% since February 2016 and our stock picks released in the middle of February gained over 5 percentage points in the three months that followed. Our latest stock picks were released last month, which investors can take advantage of by accessing this link.

In this article, we won’t talk about the stocks that make up our strategy, but will instead focus on dividend stocks that the funds tracked by us are collectively bullish on. More specifically, we are going to take a closer look at five ultra high dividend stocks that registered a substantial increase in the number of bullish investors during the first three months of 2017. The companies in question are: Iron Mountain Incorporated (Delaware) REIT (NYSE:IRM), Windstream Holdings, Inc. (NASDAQ:WIN), Washington Prime Group Inc (NYSE:WPG), Seagate Technology PLC (NASDAQ:STX), and Park Hotels & Resorts Inc (NYSE:PK).

Check out the details of each of these stocks beginning on the next page.

Let’s start with Iron Mountain Incorporated (Delaware) REIT (NYSE:IRM), in which the number of funds in our database long the stock went up by six to 17 during the first quarter. Subsequently, the total value of their holdings grew to $107.02 million from $90.86 million. Iron Mountain Incorporated (Delaware) REIT (NYSE:IRM) is engaged in providing services for storage and information management, having started nearly seven decades ago as an underground facility to store paper records. The company registered as a real estate investment trust only a couple of years ago and that status means that it has to pay out almost all of its profits to investors. For the first quarter, Iron Mountain Incorporated (Delaware) REIT (NYSE:IRM) posted EPS of $0.24, missing estimates by $0.02, while its revenue of $939 million was up by 25% on the year and $10.4 million higher than expected.

In addition, the company paid a dividend of $0.55 per share in March, which translates into a dividend yield of 6.53%. Iron Mountain is well positioned to further reward its investors with high dividends. It serves over 200,000 customers in 45 countries, offering them over 85 million square feet of real estate spread across 1,400 facilities. Among the largest shareholders of Iron Mountain Incorporated (Delaware) REIT (NYSE:IRM) is Thomas Bancroft’s Makaira Partners, which held 1.64 million shares heading into the second quarter.

In Windstream Holdings, Inc. (NASDAQ:WIN), 21 funds from our database had amassed $117.23 million worth of its stock as of the end of March, compared to 13 funds and $61.16 million, respectively, a quarter earlier. The company issued a dividend of $0.15 per share in May, in line with the previous payment.  Windstream Holdings, Inc. (NASDAQ:WIN)’s stock has slid by over 39% year-to-date, which has pushed its dividend yield up to 13.45%. Among the reasons for the decline were two worse-than-expected financial reports. For the first quarter, Windstream posted a net loss of $0.89, missing estimates by $0.21, while its revenue of $1.37 billion was $170 million lower than expected. Nevertheless, some analysts consider the stock’s sell-off to be overdone. In May, Raymond James’ analyst Frank Louthan IV upgraded the stock to ‘Outperform’ from ‘Underperform’ with a price target of $5.25. The analyst believes that Windstream Holdings has the potential to improve its free cash flow once it completes the acquisition of Broadview Networks that was announced in April.

It looks like some investors are also taking a positive view of the company. Among its largest shareholders are two so-called “quant” funds led by billionaires: Jim Simons‘ Renaissance Technologies and Israel Englander’s Millennium Management. During the first quarter, Renaissance Technologies increased its stake by 140% to 10.85 million shares, while Millennium Management added 3.10 million shares to hold 3.13 million shares at the end of March.

Next in line is another REIT, Washington Prime Group Inc (NYSE:WPG), in which 22 funds held shares heading into the second quarter, compared to 14 funds a quarter earlier. The aggregate value of their positions also advanced to $69.83 million from $59.84 million during the first three months of 2017. The company is currently paying a dividend of $0.25 per share, which gives its stock a yield of 12.35%.  Washington Prime Group Inc (NYSE:WPG)’s stock is 22% in the red so far this year and has lost over 59% in the last five years. The reason for the poor performance could be the advance of online retail, with companies like Amazon.com, Inc. (NASDAQ:AMZN) taking the lead. As Washington Prime Group Inc (NYSE:WPG) specializes in operating retail real estate, there are fears that the demand for retail properties will decline, which is being fueled by the possible bankruptcy of Sears Holdings Corp (NASDAQ:SHLD) and the poor performance of other retailers like J C Penney Company Inc (NYSE:JCP).

In general, the trends among malls have been weakening, with low traffic and productivity suggesting that many locations will have to be closed before the situation stabilizes. However, Washington Prime Group Inc (NYSE:WPG) has a hedge against closures, which is the non-recourse mortgages on a vast majority of its properties. A non-recourse mortgage means that if the borrower defaults, the issuer can take the property, but cannot pursue the borrower for other compensation, even if the value of the property does not cover the full value of the defaulted loan. In addition, Washington Prime Group Inc (NYSE:WPG)’s dividend currently amounts to around 60% of its adjusted funds from operations, so it is well covered. This could explain why hedge funds have been piling into the stock. One of these funds is J. Alan Reid, Jr.’s Forward Management, which initiated a stake containing 2.86 million shares during the first quarter.

We’ll share the details of two other ultra high dividend stocks that are attracting smart money on the next page.

In Seagate Technology PLC (NASDAQ:STX), the number of funds long the stock advances by six to 38 during the first three months of 2017, while the total value of their holdings appreciated to $1.34 billion from $1.12 billion and represented nearly 10% of its outstanding stock. Among the investors bullish on Seagate Technology PLC (NASDAQ:STX) is billionaire Jeffrey Ubben‘s ValueAct Capital, which held 9.54 million shares at the end of March. Seagate Technology pays a dividend of $0.63 per share, which gives its stock a yield of almost 6%.

Now, with REITs and MLPs, it’s clear why they have high yields, but when it comes to normal companies (like Seagate and the aforementioned Windstream Holdings), a high dividend can be a warning sign that the company is trying to retain investors through dividends, while its business is facing challenges. Even though Seagate Technology PLC (NASDAQ:STX) managed to beat bottom-line estimates in its last several earnings reports, investors are worried that the company’s market position will weaken once Solid State Drives (SSD) overtake the more traditional Hard Disk Drives (HDD) once the price for the former overtakes the latter’s. In this way, Seagate has to push harder to gain more share in the SSD market instead of being happy with its leading position in the HDD market. In turn, this will require more investment, which could make the dividend unsustainable in the long-run. Nevertheless, Seagate Technology PLC (NASDAQ:STX)’s management currently seems to be committed to returning cash to shareholders through buybacks and dividends. In addition, it has been reducing costs and has decent free cash flow, but additional investments will probably require a reduction in the distributed capital.

Finally, we have Park Hotels & Resorts Inc (NYSE:PK), in which 34 funds tracked by us held shares at the end of March, compared to just eight funds a quarter earlier. Additionally, the aggregate value of their holdings surged to $752.20 million from $16.99 million. The significant increase in the number of long investors can be explained by the fact that the company only started trading at the end of December, after having been spun-off from Hilton Worldwide Holdings Inc (NYSE:HLT). Soon after the spin-off, Park Hotels & Resorts Inc (NYSE:PK) declared a dividend of $0.43, which gives its stock a yield of 6.30%. The company’s stock has lost around 8% so far this year, but looking at its dividend yield alone, it seems attractive, as the yield is one of the highest among hospitality REITs. By comparison, Pebblebrook Hotel Trust (NYSE:PEB) has a yield of 4.70%, while Ashford Hospitality Trust, Inc. (NYSE:AHT)’s dividend yield is only slightly higher at 7.20%. Among the investors that reported new positions in Park Hotels & Resorts Inc (NYSE:PK) as of the end of March were David S. Och’s OZ Management and Steve Cohen‘s Point72 Asset Management, which disclosed ownership of 4.96 million shares and 4.62 million shares, respectively, in their latest 13F filings.

Disclosure: None