Few investors have realized better sustained profits than George Soros. His hedge fund’s annualized returns exceeded 30% for over 30 years, and made him one of the world’s richest men. He gained fame in 1992 when he made a famous bet against the Pound Sterling and generated over $1 billion in profits in just 24 hours. While his political activities have generated controversy and criticism, no one can doubt his financial acumen.
He bases that acumen on a simple aphorism: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing in boring.” He means, of course, that the most reliable stocks are the ones least likely to make waves in the markets or headlines in the news. So, don’t expect to find anything exciting in his firm’s $3.6 billion worth of 13F securities – but do expect to find solid returns and reliable dividends. After all, that’s where the profit is.
To find out just how good that profit can get, we’ve taken three of Soros’ big dividend moves and looked them up in the TipRanks database. These are investments that the Stock Screener tool reveals as ‘Buy’ rated and, more importantly, all three offer robust dividend yields, between 4% and 11%. The average dividend yield of the S&P-listed stocks is just about 2%, so Soros’ choices start at double that – and work their way up.
Up first is BP, the world’s sixth largest oil and gas company. The company’s revenues in calendar year 2018 totaled $303.7 billion, and gave a net profit of $9.6 billion. BP has had some trouble maintaining that sort of performance in 2019, however. In the Q3 earnings release, the company reported $2.3 billion in profits, a 17% decline sequentially and a 39% drop year-over-year.
The drop in profits comes on the heels of declining oil prices. Brent crude, the global benchmark price on the oil markets, is down 12.7% from its peak in April of this year. There are subtleties in pricing, however. BP’s quarterly earnings reflect the generally low oil prices, but those same oil prices have been trending slightly upwards since October – and BP’s Q3 numbers did beat the analysts’ expectations. Among the headwinds the company faces is a CEO transition, as current head Bob Dudley will be stepping down this coming March. He will be followed by the company’s upstream chief. The promotion from within promises continuity despite the upper level churn.
So, BP is a stock that is weathering a down time in commodity prices, with the resources to wait out a low-price regime. That’s a good position for a company to hold. Even better, for investors, the company has maintained its dividend. The quarterly payment has been set at 61 cents for the last six quarters, and the was 60 cents prior to that. The annualized dividend of $2.44 gives a yield of 6.67%, more than triple the S&P average. At 92%, the payout ratio, while high, is sustainable long-term.
With a background like that, it’s no wonder that Soros moved heavily into BP in Q3. The stock offers a solid industry position, a reliable dividend, and a clear path for future profits. Soros’ purchase of BP marked a new position, of 270,000 shares for his fund. At today’s prices, those shares are worth nearly $10 million.
Wall Street is upbeat about BP prospects. Setting that tone is BMO analyst Daniel Boyd, who writes, “We think BP is turning a corner after years flagging financial performance driven in part by oil-spill payments that are dropping off. We expect strong production and cashflow growth, enabled by high margin projects, to fuel dividend growth and improved returns.”
Boyd’s Buy rating is backed up by a $53 price target, suggesting a strong upside of 43%.
BP shares have received three recent Buy ratings, giving the stock a unanimous ‘Strong Buy’ from the analyst consensus. The average price target stands tall at $51.33 — indicating a robust upside potential of 39%.
Dominion Energy (D)
BP wasn’t the only energy industry company that Soros was interested in. The master investor also made a large entry purchase in Dominion Energy, a power company based in Richmond, Virginia. Dominion is a major supplier of electricity in Virginia and the Carolinas, and also supplies natural gas to customers in Pennsylvania, Ohio, West Virginia, the Carolinas, and Georgia.
Utilities are a profitable business. Dominion’s earnings in Q3 2019 came in at $1.18 per share, beating the estimates by 1.7%, and beating the year-ago number by 2.6%. Revenues were up more than 23% year-over-year, but missed the Q3 forecast by 3%.
Dominion is due to pay out its next dividend on December 20. The payment, of 92 cents, annualizes to $3.67, giving a solid yield of 4.54%. The company has a 10-year history of committing to its dividend payment, and has been raising it annually for the last three years. Dominion has proven itself a reliable dividend stock.
Long-term reliability of return likely drew in Soros, who purchased 150,000 D shares in Q3. His purchase is now worth over $12 million. Like BP, this was a new position for Soros, signaling an interest in the energy industry.
Wolfe analyst Steve Fleishman takes a bullish stance on Dominion. Writing on the stock this week, he said, “Dominion has a balanced strategy, combining high-growth electric and gas utility operations with heavily contracted gas pipeline and LNG export assets. The company has done a good job de-risking the earnings mix and balance sheet, and we see it as attractive at current levels…”
Fleishman gives D shares a ‘Buy’ rating with a $90 price target. His target indicates confidence, and about 12% upside potential for the stock.
Wall Street is evenly split right now on Dominion, with the analysts giving the stock 4 Buys and 4 Holds. The stock is trading for $80.69, and the $87.57 average price target implies a premium of 8.5% from the trading price.
Annaly Capital Management (NLY)
Turning away from the energy industry, we come to a stock in which Soros had already held a position. In the third quarter, the billionaire added over 1.15 million shares to his exiting holding in Annaly Capital Management, a substantial increase of 49%. The company is a real estate investment trust, and one of the largest in the US.
Real estate investment trusts (REITs) are companies that own and manage combinations of residential or commercial properties, or invest in the loans and mortgages used to fund those properties. Annaly invests primarily in mortgage-backed securities, and holds some $133 billion worth of assets in its portfolio.
For dividend investors, whether small-scale or billionaire hedge gurus, the stock is an obvious target. US tax code regulations require REITs to return as much as 90% of their income directly to shareholders, which is usually done in the form of dividends. For income investors, this is a boon. Stocks like NLY generally have dividend payout ratios that start at 85%; in Q3, NLY’s ratio was just over 100%, meaning all of the company’s income was sent back to investors. The current dividend, paid out quarterly at 25 cents per share, annualizes to a yield exceeding 10%.
The high dividend makes up for slipping share value, helping to keep investors interested in NLY even though the stock has slipped 4.8% this year. As noted above, Soros’ interest in the company is substantial – and his total holding in the stock, of 3.517 million shares, is worth $32.88 million.
4-star Barclays analyst Mark Devries lays out a clear thesis for investing in Annaly: “NLY's diversification into non-Agency and commercial real estate investments are initiatives that could generate attractive returns longer term. We like Agency focused Mortgage REITs at this point in the cycle given their defensive nature and ability to outperform in a bear market for equities.”
Devries puts a $10 price target and a Buy rating on this stock. His target suggests a 7% upside to the stock – not spectacular, but still profitable.
Wall Street’s analyst give approval to NLY by a 3 to 1 advantage, putting a Strong Buy consensus rating on the stock. The average price target, $9.69, implies a modest upside of 4% from the $9.35 share price. From an investor’s perspective, the high yielding dividend here is more attractive than the shares’ appreciation potential.