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A Look at Performance of Hedge Funds’ Five High-Dividend Bets

Income stocks definitely need to account for a large share of one’s retirement portfolio, as most income stocks are usually associated with lower levels of volatility than the broader market. Indeed, the young generation of investors has both the time and appropriate wages to cover any possible (sizable) losses in equity markets (assuming that this camp of investors opts for growth stocks instead of income stocks), but retirees need stable income more than anything else. An ideal equity portfolio for retirees would generally comprise a diversified basket of strong companies that pay attractive dividends. Given the current low interest-rate environment across the globe, which means that investors continue to receive low returns from bank deposits or other debt-related instruments, dividend stocks may continue to receive high attention from the investment community. But is there anything better than a mix of strong capital appreciation and high dividend payments? So my simple answer to this question would be: Nothing. For that reason, Insider Monkey decided to lay out a list of high-dividend stocks and discuss their performance in the first quarter of this year.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Northstar Realty Finance Corp (NYSE:NRF)

– Elite Investors with Long Positions (as of December 31): 48

– Aggregate Value of Elite Investors’ Holdings (as of December 31): $796.16 Million

– Dividend yield: 12.82%

Like most dividend-paying companies, Northstar Realty Finance Corp (NYSE:NRF) lost some attractiveness within the hedge fund industry during the final quarter of 2015. Specifically, the number of funds tracked by Insider Monkey with stakes in the company declined to 48 from 59 quarter-on-quarter, with those 48 funds amassing almost 25% of its total number of outstanding shares on December 31. Northstar Realty Finance is a diversified commercial real estate company that invests in multiple asset classes such as healthcare, hotel, manufactured housing communities, net lease and multifamily properties. Although the company pays out an eye-catching dividend of 12.82%, some analysts believe that a possible investment in this company’s shares represents an extremely risky investment alternative that should be avoided. One thing is crystal clear, Northstar Realty Finance’s dividend payments are not sustainable. The company increased its annual dividend payment per share to $3.60 in 2014 from $1.84 in 2011, but paid out a much lower dividend of only $2.75 in 2015. Moreover, the company has been posting losses for several years even though total property and other revenues have been growing at an extremely high rate in recent years; the company’s top-line results increased to $1.82 billion in 2015 from $679.50 million in 2014 and $266.36 million in 2013. Shares of Northstar Realty Finance are down 65% in the past 12 months and were 20% in the red during the first quarter of this year, which probably explains the somewhat inflated dividend yield. Christian Leone’s Luxor Capital Group acquired a new stake of 5.32 million shares in Northstar Realty Finance Corp (NYSE:NRF) during the December quarter.

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