Billionaire investors generally don’t necessarily need dividend income to make ends meet. They buy dividend-paying stocks because they know that companies committed to returning a portion of earnings to shareholders tend to outperform ones that don’t.
In the first three months of the year, billionaire hedge fund managers bought millions of shares of Pfizer (NYSE: PFE) and AT&T (NYSE: T).
Both of these dividend payers offer mouthwatering yields near 6% at recent prices. Here’s a look at how they could maintain their quarterly payouts over the long run. Let’s see if they’re right for everyday investors, too.
Pfizer
Pfizer is down by more than half from its peak in late 2021. Perhaps sensing a bargain, John Overdeck and David Siegel of Two Sigma added 18.9 million shares of the big pharma stock to funds they manage during the first nine months of 2024.
At recent prices, Pfizer shares offer a 5.9% yield and the confidence that comes with 15 consecutive years of annual dividend raises.
Pfizer stock has fallen from previous heights because sales of its COVID-19 products collapsed faster than most investors had expected. Savvy pharmaceutical stock investors know that the company funneled heaps of its previous windfall into new sources of revenue, such as the $43 billion acquisition of cancer drug developer Seagen last year.
One of the drugs Pfizer acquired from Seagen, Padcev, recently earned an indication expanding approval to treat newly diagnosed bladder cancer patients. The expanded indication is expected to drive annual Padcev sales above $7 billion at its peak.
In addition to expansions of existing drugs like Padcev, Pfizer has heaps of new drugs to launch this year. In 2023, Pfizer earned approvals from the U.S. Food and Drug Administration for nine new drugs, which set a new record. Scooping up some Pfizer shares is a great way for individual investors, and billionaires, to pump up their passive income stream.
AT&T
AT&T probably doesn’t show up when you screen for great dividend stocks. In 2022, the company cut its dividend nearly in half. The stock has also fallen significantly, and at recent prices, it offers a juicy 6.1% yield.
In the first quarter, Steven Cohen and Point72, the fund he manages, bought about 15.3 million shares of AT&T stock. AT&T’s dividend had to come down because the company spun out its unpredictable media assets. Now that it’s just a telecommunications company, cash flows should be far more dependable. After all, how often do you change your mobile or broadband internet service provider?
AT&T Fiber has been a big success for the telecom company. The first quarter of 2024 was the 17th in a row with over 200,000 new fiber subscribers. Last year, the company launched a fixed wireless service for customers who aren’t near a fiber optic cable, and it’s taking flight. Total broadband sales are expected to climb more than 7% this year.
AT&T’s pace of 5G network investment is past its peak, and the lower spending is pushing up profitability. The company expects between $17 billion and $18 billion in free cash flow this year. Strong cash flows have management thinking it can reduce its debt load from 2.9 times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at the moment to 2.5 times adjusted EBITDA in the first half of 2025.
Management is playing its cards close, but there’s a strong chance the company will begin raising its dividend payout next year, after reaching its debt reduction goal. Buying some shares now, and holding them over the long run, could lead to heaps of dividend income for patient investors.
Should you invest $1,000 in Pfizer right now?
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
Billionaires Are Buying These 2 Ultra-High-Yield Dividend Stocks Hand Over Fist. Are They Smart Buys for Your Portfolio? was originally published by The Motley Fool
