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The most difficult year for investors in more than a decade is officially coming to a close. It’s a year that’s seen all three major U.S. stock indexes — the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite — plunge into a bear market.
While periods of heightened volatility are known to weigh on investors’ emotions, they’re historically a great time to consider investing in dividend stocks. Publicly traded companies that pay a regular dividend are usually profitable and have demonstrated that they can navigate their way through economic contractions and recessions. In other words, they’re just the type of time-tested stocks investors should be looking to buy during a bear market.
Image source: Getty Images.
One group of investors that have taken this idea to heart as the stock market plunges is billionaire money managers. Based on 13F filings with the Securities and Exchange Commission in November, billionaires have been aggressively buying four high-yield dividend stocks (those with yields of 4% or above) for 2023.
The first high-octane income stock that billionaire investors can’t stop buying in advance of the new year is telecom stock AT&T (T -0.76%).
Even though its yield actually fell following the spinoff of content arm Time Warner, its 6% payout is as strong as it’s been in a long time. That’s potentially why billionaires Jim Simons of Renaissance Technologies and John Overdeck and David Siegel of Two Sigma Investments oversaw the respective purchase of 8.37 million shares and 2.37 million shares of AT&T stock in the third quarter.
The biggest catalyst for AT&T in 2023, and likely through at least mid-decade, is the 5G revolution. AT&T and its peers are liberally spending on 5G wireless infrastructure upgrades that should ultimately coerce consumers and enterprises to upgrade their wireless devices. It’s been about 10 years since wireless providers last meaningfully improved wireless download speeds, so the impetus to upgrade and consume more data is certainly there. For its part, AT&T recognized its fastest quarterly revenue growth for its wireless services segment in more than a decade in the September-ended quarter.
The other big news with AT&T is the aforementioned spinoff of Time Warner and the subsequent merger with Discovery to create Warner Bros. Discovery. When Time Warner completed its merger with Discovery, AT&T “received” a $40.4 billion aggregate windfall in the form of cash and Warner Bros. Discovery assuming select lots of debt. The end result for AT&T is a modestly leaner balance sheet that provides added financial flexibility during a period of heightened economic uncertainty.
A second high-yield dividend stock that billionaire money managers can’t seem to get enough of is pharmacy chain Walgreens Boots Alliance (WBA -1.05%). Not only is it doling out a 5% yield, but Walgreens has raised its base annual payout for 47 consecutive years.
The biggest billionaire bulls on Walgreens look to be Ken Griffin of Citadel Advisors and the aforementioned Jim Simons of Renaissance. Griffin’s fund bought a little over 1.45 million shares during the third quarter, with Simons’ fund adding 223,300 shares to its existing position.
This burgeoning interest in Walgreens Boots Alliance likely has to do with the company’s multipoint growth strategy that hinges on boosting its organic growth rate. Walgreens is tackling this task in two ways.
To begin with, it’s investing heavily in a variety of digitization initiatives designed to promote online purchases and drive-thru pickup. Although most of Walgreens’ sales will come from its brick-and-mortar stores, the pandemic was a teaching moment for management of the importance and convenience of having a beefed-up online presence.
The other catalyst is Walgreens and VillageMD (Walgreens is a majority owner in VillageMD) opening as many as 1,000 full-service health clinics co-located at Walgreens’ stores in more than 30 U.S. markets by the end of 2027. Having physicians on staff allows these clinics to handle an assortment of ailments. It’s just the type of grassroots initiative needed to draw repeat customers back into Walgreens’ stores.
The third supercharged income stock billionaires have piled into ahead of the new year is gold mining company Newmont (NEM -0.71%). Despite gold stocks not being known for high yields, Newmont’s 4.5% yield appears to be sustainable.
The billionaire investors that have had a seemingly insatiable appetite for shares of Newmont are Israel Englander of Millennium Management and Ken Griffin of Citadel. Englander and Griffin gobbled up approximately 2.65 million shares and 1.65 million shares during the third quarter.
The most-logical reason for billionaires to buy into Newmont is simple: Gold is often viewed as a hedge against high inflation and economic uncertainty. The price of physical gold has certainly held up better in 2022 than the S&P 500 and Nasdaq Composite.
To add to this point, gold stocks tend to become their most lustrous during the very early stages of a bull market. Because the stock market is forward-looking, it’s not uncommon for equities to bottom out well before the U.S. economy. Therefore, we could be nearing the sweet spot for gold stocks in the new year or shortly thereafter.
Additionally, Newmont’s scale comes in handy. Its size and mined byproducts help keep its all-in sustaining costs toward the lower end of the industry average. This allows for ongoing exploration, existing mine expansion, and even acquisitions without straining the company’s balance sheet.
The all-electric 2022 Ford F-150 Lightning is one of 30 EV models Ford is launching by mid-decade. Image source: Ford.
The fourth and final high-yield dividend stock billionaires are aggressively buying for 2023 is auto giant Ford Motor Company (F 0.35%). Only four of the roughly three dozen publicly traded auto stocks are currently paying a dividend. Ford sports the highest yield among those four.
The billionaires who are clear fans of what they’re seeing from Ford include Ken Fisher of Fisher Asset Management and, once again, Ken Griffin of Citadel. Fisher purchased nearly 44.9 million shares of Ford in the September-ended quarter, while Griffin oversaw the addition of 9.75 million shares.
The excitement surrounding Ford can likely be traced to three factors. The first is Ford’s sizable investment in electric vehicles (EVs) and batteries. Ford plans to spend a cumulative $50 billion through 2026 on EV and battery research, with the goal of launching 30 new EV models worldwide by the end of 2025. This EV replacement cycle should be an organic growth driver that lasts for decades.
Secondly, but without question building on the previous point, Ford has an established presence in China, the No. 1 auto market in the world. If estimates prove accurate and more than half of all vehicle sales in China are powered by alternative energy in 2035, Ford has a massive overseas opportunity to boost its sales and profits.
And third, Ford’s F-Series truck segment remains unstoppable. This year should mark the 46th consecutive year the F-Series has been the best-selling truck in the United States. It’s also been the top-selling vehicle in the U.S., period, for 41 straight years. Since trucks sport better margins than sedans, the company’s F-Series product line has been vital to sustaining or growing its vehicle operating margin.
Sean Williams has positions in AT&T, Walgreens Boots Alliance, and Warner Bros. Discovery. The Motley Fool recommends Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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