Investors often look for dividend-paying stocks that offer exceptionally high yields. However, these high returns can sometimes indicate potential challenges for the companies involved.
Historically, the S&P 500 Index has averaged an annual return of 9.7% since 1928. While many hedge fund managers strive to beat this benchmark, only a few consistently achieve it and build fortunes exceeding $1 billion.
In the first quarter of this year, a select group of billionaire investors made significant investments in Medical Properties Trust (NYSE: MPW) and AGNC Investment (NASDAQ: AGNC). These stocks offer yields in excess of 11%, presenting an opportunity for significant returns if their dividends remain stable.
Here’s a closer look at these high-yield dividend stocks and whether everyday investors can depend on them for continued dividend payments.
1. Medical Property Trust
Shares of Medical Properties Trust have plunged about 49% from their peak in late 2023. This drop follows the company’s 48% dividend cut last year and a series of troubling news about its main source of income.
Despite these challenges, Medical Properties Trust currently offers an impressive dividend yield of 11.9%. Although the company posted significant losses in the first quarter, several billionaire investors are optimistic about its recovery. John Overdeck and Two Sigma Investments initiated a new position with 2.58 million shares, while Susquehanna’s Jeff Yass more than doubled his holdings by purchasing 2.34 million shares.
Medical Properties Trust is a real estate investment trust (REIT) that specializes in hospitals and other acute care facilities. Its cash flows are typically reliable because it operates under a net lease structure, meaning it does not manage the properties directly. However, its largest operator, Steward Health Care, filed for bankruptcy on May 6 after failing to pay rent for several quarters.
While there is a small chance that Medical Properties Trust will be able to maintain its dividend payments, this seems unlikely given that Steward accounted for more than 20% of its total rental income at the end of 2023.
Yass and Overdeck’s investments in Medical Properties Trust represent less than 1% of their portfolios. If you decide to follow suit, it is wise to limit your exposure to an amount you can afford to lose.
2. AGNC Investment
AGNC Investment is a mortgage REIT known for its monthly dividend payments. At current prices, the stock boasts a notable return of 14.6%.
David Siegel and Two Sigma Investments recognized this opportunity and opened a new position with 3.08 million shares in the first quarter. Israel Englander and Millennium Management also acquired a new position with 1.57 million shares.
AGNC Investment borrows funds at relatively low short-term rates and uses the capital to purchase longer-term mortgage-backed securities that offer higher yields. More than 98% of AGNC’s portfolio is backed by government agencies, reducing the risk of default for individual borrowers.
However, AGNC’s asset value decreased significantly in 2022 due to rising interest rates. Siegel and Englander likely anticipate that the Federal Reserve will lower or stabilize rates in the coming months. If its prediction is correct, AGNC could generate substantial returns for those who buy at current prices.
However, there is no certainty that the Federal Reserve will not raise rates further, which could make it difficult for AGNC to maintain its high payments. As with Medical Properties Trust, it is prudent to limit your investment in AGNC to a manageable level if you decide to follow the strategies of these billionaire investors.
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