One of the best aspects about putting your money to work on Wall Street is that there's a path for everyone to make money. Regardless of your risk tolerance or interests, there's bound to be individual stocks and/or exchange-traded funds (ETFs) that can help you reach your goal of financial independence.
But among these countless strategies, few have lined investor's pockets more than buying and holding high-quality dividend stocks over extended periods.
Recently, the investment advisors at Hartford Funds refreshed a data set from their 2023 report ("The Power of Dividends, Past, Present, and Future") that compared the performance of income stocks to non-payers over an extended period.
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According to the analysis conducted by Hartford Funds, in collaboration with Ned Davis Research, dividend stocks have averaged a 9.17% annual return over the last 50 years (1973-2023), and did so while being 6% less volatile than the broad-based S&P 500 . This more than doubled up the 4.27% annualized return of non-payers over the prior half-century.
The long-term outperformance of income stocks isn't lost on Wall Street's smartest (and richest) investors. Thanks to quarterly Form 13F filings , everyday investors can get an under-the-hood look at what top-tier billionaire money managers have been buying and selling in the latest quarter.
You might be surprised to learn that while more than a half-dozen prominent billionaires were dumping shares of artificial intelligence (AI) kingpin Nvidia (NASDAQ: NVDA) during the March-ended quarter, they were absolutely piling into two ultra-high-yield dividend stocks, which sport a scorching-hot average yield of 10.78%!
Eight billionaire money managers have begun kicking Nvidia to the curb
Arguably, there isn't a hotter trend on Wall Street right now than artificial intelligence. Nvidia's market cap has skyrocketed by more than $2.4 trillion since the start of 2023 solely because of its dominance in AI-accelerated data centers.
Nvidia's H100 graphics processing units (GPUs) have quickly become the standard in high-compute data centers . With its Blackwell chip and Rubin platform set to make their respective debuts later this year and in 2026, there's a good likelihood Nvidia will sustain the compute advantage that's made it a popular early choice among businesses wanting to run generative AI solutions and train large language models.
In spite of this early success, eight prominent billionaire asset managers dumped shares of Nvidia during the first quarter (total shares sold in parenthesis have been adjusted for Nvidia's 10-for-1 stock split in June ):
- Philippe Laffont of Coatue Management (29,370,600 shares)
- Ken Griffin of Citadel Advisors (24,627,160 shares)
- Israel Englander of Millennium Management (7,200,040 shares)
- Stanley Druckenmiller of Duquesne Family Office (4,415,510 shares)
- John Overdeck and David Siegel of Two Sigma Investments (4,208,010 shares)
- David Tepper of Appaloosa (3,480,000 shares)
- Steven Cohen of Point72 Asset Management (3,045,050 shares)
History could be one reason why Wall Street's brightest investors have begun to change their tune on Nvidia. For 30 years, we've watched investors consistently overestimate the utility and enterprise adoption of new technologies, innovations, and trends. It's going to take some time for AI to mature, and for businesses to develop a game plan of how to grow their sales and profits using this technology. Long story short, the AI bubble is probably going to burst sooner, rather than later .
These eight billionaire money managers are likely also anticipating an uptick in competition in high-compute data centers. On top of external competition, Nvidia's largest customers are developing AI-GPUs for their respective data centers. Even with its clear-cut compute advantage, Nvidia is set to lose precious data center "real estate" to other chips going forward.
While billionaires were busy sending shares of Nvidia to the chopping block in the March-ended quarter, they opportunistically purchased shares of two high-octane dividend stocks instead.
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Annaly Capital Management: 13.09% yield
The first ultra-high-yield dividend stock top-tier billionaires chose to purchase as they were dumping shares of AI titan Nvidia is mortgage real estate investment trust (REIT) Annaly Capital Management (NYSE: NLY) . Annaly is yielding north of 13%, has declared $26 billion in cumulative dividends since its initial public offering (IPO) in October 1997, and had two prominent billionaire buyers in the first quarter (total shares purchased in parenthesis):
- Ken Griffin of Citadel Advisors (818,820 shares)
- Israel Englander of Millennium Management (465,045 shares)
Although mortgage REITs are highly sensitive to changes in interest rates and have been weighed down by the longest inversion of the Treasury yield curve on record, a proverbial light at the end of the tunnel is emerging.
For starters, the yield curve historically spends a disproportionate amount of time sloped up and to the right. In other words, longer-dated bonds typically sport higher yields than Treasury bills set to mature in a year or less. Eventually, the yield curve will normalize, and Annaly Capital Management should enjoy an expansion of its net interest margin and an increase of its book value. The latter is noteworthy given that the share price of mortgage REITs tends to hover close to their book value.
Furthermore, the Federal Reserve is nearing a rate-easing cycle . Mortgage REITs tend to perform their best when interest rates are declining and the Federal Reserve is telegraphing its monetary policy moves in a slow and transparent manner. Short-term borrowing costs should fall as rates decline, leading to an eventual widening of Annaly's net interest margin.
But the real secret sauce for Annaly is its focus on agency assets . An "agency" security (e.g., mortgage-backed securities) is backed by the federal government in the unlikely event of a default. This added protection allows Annaly to lever its investments, when prudent, which helps it sustain its double-digit yield.
Walgreens Boots Alliance: 8.46% yield
The second ultra-high-yield dividend stock billionaire investors piled into while they were sending shares of Nvidia to the chopping block is battered pharmacy chain Walgreens Boots Alliance (NASDAQ: WBA) . Not to sound like a broken record, but the two billionaire buyers include (total shares purchased in parenthesis):
- Ken Griffin of Citadel Advisors (1,123,806 shares)
- Israel Englander of Millennium Management (1,005,313 shares)
The catalyst behind Walgreens Boots Alliance's surging yield is the abysmal performance of its stock. Since yield is a function of payout relative to share price, being the worst-performing member of the S&P 500 in the first-half of 2024 sent the company's yield soaring -- even following a near-halving of its quarterly payout when the year began.
Walgreens is contending with a number of headwinds, which includes growing competition from online pharmacies, an increase in theft ("shrinkage") in some of its stores, and high levels of debt/operating lease liabilities. These challenges have led Walgreens' management team to implement a laundry list of changes.
In addition to expected cost-cutting and store closures, Walgreens is focusing its efforts on building out its healthcare services segment , The company has partnered with, and invested in, VillageMD to open full-service clinics co-located in its stores. While this has been a bumpy transition that resulted in an unsightly goodwill writedown during the fiscal second quarter (ended Feb. 29, 2024), the margins and long-term growth potential associated with healthcare services are promising.
Walgreens resolved another long-standing issue when it hired former Express Scripts CEO Tim Wentworth as its new chief . Whereas Walgreens' prior CEO Rosalind Brewer lacked a background in healthcare, Wentworth brings decades of experience to the table. Investors may not appreciate Wentworth ripping off the proverbial Band-Aid, but it's a necessary move to get Walgreens back on track.
Billionaires Griffin and Englander might also be enamored with Walgreens Boots Alliance's bargain-basement valuation. Shares are valued at 25% below book value and trade at roughly 6 times consensus earnings per share for the following fiscal year.
Although a turnaround won't happen overnight, the puzzle pieces are in place.
Sean Williams has positions in Annaly Capital Management and Walgreens Boots Alliance. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy .
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