Everyday investors looking for ways to boost their passive income stream will want to turn their attention to billionaire fund managers.
Tracking the actions of billionaires may be easier than you think. Thanks to the U.S. Securities and Exchanges Commission and its disclosure requirements, we're all just a few clicks away from what the world's most successful money managers are buying and selling every three months.
Individual investors can learn a lot by studying the actions of billionaire fund managers with much more experience. Unfortunately, even the most successful investors can be wrong sometimes. Here's a closer look at some recent high-profile stock picks to see if they still look like smart stocks to buy.
Hercules capital
Hercules capital (NYSE:HTGC) is a business development company (BDC) that allows individual investors to participate in the previously elusive world of venture capital investing. Since its inception approximately 21 years ago, it has committed more than $19 billion to hundreds of startups across various technology and life science industries.
Even billionaires who have the resources to dabble in venture capital are buying shares of Hercules Capital. Ken Griffin and Citadel Advisors bought 161,891 shares of the BDC in the last three months of 2023.
Many Hercules Capital bets don't work, but the ones that do more than offset the losses. For example, the BDC invested in Palantir a few years before its initial public offering (IPO) in 2020. Palantir has since become a software giant worth more than $51 billion at recent prices.
Most BDCs act as simple lenders, but Hercules Capital's investments usually includes equity bets with very unpredictable values. To smooth out the bumpy results, the company is offering investors additional dividend payments on top of a regular cash dividend.
Hercules Capital's combination of regular and supplemental dividends currently equates to a quarterly payment of $0.48 per share. If dividend payments remain stable, investors who buy at recent prices will receive a hefty 10% annual return.
With such a high upfront return, the stock doesn't need to increase its payout to provide a market-beating return. That said, a dividend increase seems likely. Hercules made a record number of new commitments in the first quarter. Hercules also has a solid track record of increasing regular quarterly payouts, which have grown steadily since 2010.
AT&T
AT&T (NYSE:T) is getting a lot more attention from investors looking for income now that it has spun off its unpredictable media assets. It has cut its dividend in 2022 to offset the spin-off of its media assets. At recent prices, the stock offers a yield of 6.6%.
Over the last three months of 2023, Steven Cohen and Point72 Asset Management more than doubled an existing position by buying nearly 5 million shares, and it was a relatively small gamble. Israel Englander and Citadel Advisors bought more than 19 million AT&T shares in the fourth quarter.
For years, AT&T's landline telephone and Internet subscribers have been canceling their subscriptions. Fortunately, many have signed up for AT&T's fiber optic internet service. In the first quarter, the company added 252,000 fiber customers, bringing the total to 8.6 million.
AT&T shareholders can look forward to a steadily growing number of broadband subscribers. Last year, the company finally launched a fixed wireless broadband service that uses its fifth-generation (5G) wireless network. Since T-Mobile Sprint acquired in 2020, Americans had only three 5G networks to choose from.
The growing number of broadband subscribers drove free cash flow to a healthy $21.9 billion over the past twelve months. During that period, the company needed only 37% of the free cash flow generated by its operations to meet its dividend obligation.
AT&T has kept its dividend steady since 2022 to help reduce its massive debt load. With increasing contributions from broadband subscribers, it could announce significant annual payout increases again in a year or two. Following billionaire fund managers and adding a few shares of this stock to a diversified portfolio is probably not a bad idea.
Should you invest $1,000 in Hercules Capital now?
Consider the following before purchasing shares in Hercules Capital:
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Palantir Technologies. The Motley Fool recommends T-Mobile US. The Motley Fool has one disclosure policy.
Two high-yield dividend stocks that billionaires are buying hand over fist was originally published by The Motley Fool
