From the October 2022 trough to last Friday’s peak, the S&P 500 had about a 44% total return. That’s a remarkable 16-month run-up for the popular index. While many of the stocks that carried the index aloft were tech stocks, billionaire investors aren’t necessarily looking to the same names to bet on for the next 16 months and beyond.
One common trend amongst top-drawer hedge fund managers is dividend stocks. That shouldn’t be surprising. As this bull market starts getting longer in the tooth, the best investors will turn to income stocks to provide ballast for their portfolios.
Dividend payers have a long history of outperformance. Because they are typically profitable, well-managed and financially stable companies, they tend to handily outperform non-income stocks. Dividend stocks on the S&P 500 have a fabulous 90-plus year winning streak, particularly companies with high — but not the highest — yields. The following three dividend stocks offer just such yields ranging from 2.7% to 7.7%.
Enterprise Products Partners (EPD)
The first dividend stock prominent billionaire investors are scooping up is midstream oil and gas player Enterprise Products Partners (NYSE:EPD). Several super investors reported last month that during the December 2023 quarter, they picked up hundreds of thousands of shares of EPD stock. Among those billionaires were Bruce Berkowitz of Fairholme Capital, Mario Gabelli of Gabelli Asset Management and Ken Griffin of Citadel Advisors.
Undoubtedly, they have seen demand for fossil fuels rising globally, leading to rising prices. As an energy transportation and storage provider, Enterprise Products Partners benefits from the increased usage. Since it operates on fixed-fee, long-term contracts, the middleman gets paid regardless of whether its customers take the product or capacity or not.
Shares of EPD stock are up 26% over the past three years, just shy of the 32% increase in the S&P 500. Its dividend yields 7.3%. With oil and gas on the move higher again due to the ongoing war in Ukraine and turmoil in the Middle East, we’ll probably see more hedge fund managers buying in.
AT&T (T)
Telecommunication giant AT&T (NYSE:T) served up a dud the other day. It suffered a nationwide outage of its service that it blamed on “the application and execution of an incorrect process used while working to expand our network.” The wireless carrier is investing billions to expand its network and improve customer experience. The ongoing rollout of the 5G network system is an especially critical upgrade to the telecom grid. The mobile experience will be anywhere from 10 times to 100 times faster than 4G networks. The upgrade marks the biggest improvement to the system in a decade.
Griffin was also a buyer of T stock in the fourth quarter. However, he was also joined by Joel Greenblatt of Gotham Asset Management and Ray Dalio of Bridgewater Associates.
Despite the outage, and the $5 credit AT&T will be providing customers for the inconvenience, the carrier remains an attractive investment. Having shed its entertainment network and paid down a good portion of its debt with the proceeds, AT&T is a more focused telecom that still offers a dividend yielding 6.6% annually.
RTX (RTX)
Formerly Raytheon Technologies, defense contractor RTX (NYSE:RTX) is the third dividend stock billionaire investors are buying to get wealthier. Shares are up 30% from October lows that were caused by supply chain snarls pinching margins. Contracts were also signed before inflation roared to life and interest rates marched higher last year, further pressuring profits.
Yet, as the second-largest defense contractor, RTX is not about to go bust. And with the U.S. military engaging in greater numbers of conflicts globally, it will have a pipeline for expanded sales. The U.S. is using up much of its stockpiled war materiel in Ukraine. U.S. Air Forces in Europe Commander Gen. James Hecker said last summer we were depleting them to “dangerously low” levels.
RTX produces the Patriot missile system, Stinger and Javelin missiles, high-speed, anti-radiation missiles (HARMS) and national surface-to-air missile systems (NASAMS). RTX ended 2023 with a record backlog of orders totaling $196 billion. That could be why Greenblatt was again a buyer in RTX stock.
The defense contractor’s dividend yields 2.61%. With a cash flow payout ratio of just 30%, the dividend is secure. There is plenty of room for future payments and growth.
On the date of publication, Rich Duprey held a long position in T and RTX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
