When it comes to winning investment strategies, buying dividend stocks tends to rise to the top. It’s likely because these are successful, profitable companies that have been battle-tested over time and still come out on top. They choose to reward their investors by sharing the fruits of their success. That is why there are several stocks the elite love.
Data from Hartford Funds shows that going all the way back to 1930, there’s not been a single decade where dividend stocks on the S&P 500 lost money. Even when the market was losing money during the Great Depression and the so-called “Lost Decade” of the 2000s, income-generating stocks still reported gains for shareholders.
Hartford also found that from 1960 on, reinvested dividends represented an astounding 69% of the index’s total return. Coupled with the power of compounding, a $10,000 initial investment in dividend payers turned into $4.1 million 60 years later. Compare that to $641,000 just by investing in the index alone.
Wall Street’s elite are well aware of that outperformance. The smart money was buying up high-yielding dividend payers this past quarter. What follows are three income stocks billionaires love to buy with yields at least four times greater than the S&P 500’s 1.51%.
Covid vaccine darling Pfizer (NYSE:PFE) fell on hard times afterward. Record revenue of over $100 billion is now down 42% year to date as Paxlovid sales all but evaporated (down 95%) and Comirnaty revenue plunged 70%. Pfizer also took a one-time no-cash charge of $4.2 billion related to the return from the United States government of an estimated 7.9 million unused Paxlovid doses.
Convincing people today to receive additional Covid shots year after year is a hard sell. The non-cash charges Pfizer took swiped $0.84 per share from the drugmaker’s earnings. It turned what would have been a profit into a $0.42 per share loss.
Yet Pfizer has a large portfolio of non-Covid-related therapies. It expects those will generate 6% to 8% revenue growth for the full year. No doubt that is what Bill & Melinda Gates Foundation were looking at when they bought $2 million worth of Pfizer stock this quarter. Similarly, David Katz of Matrix Asset Advisors increased his stake 71% and now holds $6.4 million worth of stock.
Pfizer Shares are down 41% year-to-date but trade at nine times expected earnings. Its dividend yields 5.2%, which could make it too good of an opportunity for some billionaires to pass up. I wouldn’t be a buyer though. New acquisitions to make up for lost revenue will be expensive. Its recent purchase of Seagen (NASDAQ:SGEN) for $43 billion is a case in point. It paid a 33% premium above the oncology stock’s asking price. Pfizer will be a buy again one day, but I don’t see it there today.
Enterprise Products Partners (EPD)
Oil and gas middleman Enterprise Products Partners (NYSE:EPD) also attracted smart money support this past quarter. Bruce Berkowitz of Fairholme Capital Management increased his holdings by 15% and now owns 5 million shares worth $138 million.
Shares of the master limited partnership (steady performer that pays a dividend yielding a lucrative 7.6% annually.) are up 10% in 2023, but it’s not a stock that will impress you with stellar growth. Rather it is a
It carefully invests in its operations to grow the business for the benefit of itself and for shareholders. It then returns substantial sums to them as a reward. Enterprise Products distributed $1.9 billion in dividends to investors in the third quarter while raising the payout 5.3%. It’s increased the payout for 25 consecutive years.
The benefit of the MLP is that its business makes money no matter which way the oil and gas markets go. Operating on long-term fixed contracts, Enterprise Products Partners gets paid whether its customers take the product or not. It’s a sweet spot to be sitting pretty. There are complex tax issues, however, that need to be considered when investing in MLPs.
Telecom giant Verizon (NYSE:VZ) faces headwinds from inflation and rising interest rates that make its capital-intensive business expensive to operate. It also faces intense competition from rivals AT&T (NYSE:T) and T-Mobile (NYSE:TMUS) creating difficulty in attracting customers to its services.
However, Verizon finally found its footing again in the third quarter. It brought in 100,000 new wireless customers and 434,000 new broadband subscribers. Still, revenue and earnings per share were down year over year, though by less than 3%. Its dividend continues to offer a healthy yield of 7.0%, which ranks amongst its highest levels in recent years.
The telecom saw two new billionaires buy into its stock this quarter. Yachtmann Asset Management and Mairs & Power Growth Fund started new positions with the latter buying nearly $78 million worth of stock. Hillman Value Fund also increased its stake by 22%.
The shares still offer a good value even after jumping 25% above their lows. The stock trades at just eight times projected earnings and a bargain basement nine times free cash flow. This is a company that still has plenty of growth in its future, even if it’s not the meteoric kind. The national 5G rollout offers substantial opportunities as consumers upgrade their phones.
On the date of publication, Rich Duprey held a LONG position in T stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.