This has been one of many most-challenging years in many years for the investing neighborhood. By way of the first-half of the yr, the benchmark S&P 500 delivered its worst return in 52 years! In the meantime, the growth-dependent Nasdaq Composite shed barely greater than a 3rd of its worth from its mid-November closing excessive.

However it doesn’t matter what the inventory market throws at billionaire cash managers, it is not often sufficient to scare them to the sidelines. Regardless of heightened volatility, numerous profitable billionaires have been avid fairness consumers.

Picture supply: Getty Photographs.

Particularly, billionaires cannot cease shopping for ultra-high-yield dividend shares in an setting the place the U.S. inflation price is at a four-decade excessive of 9.1%, as of June 2022. An “ultra-high-yield dividend inventory” is an arbitrary time period I am utilizing to explain an revenue inventory with a yield of at the very least 7%. Whereas corporations with a excessive yield can typically be extra bother than they’re value, a choose group of billionaires seem enamored with the next three ultra-high-yield dividend shares.

Annaly Capital Administration: 13.6% yield

The primary passive-income powerhouse that at the very least one billionaire cash supervisor cannot cease shopping for is mortgage actual property funding belief (REIT) Annaly Capital Administration (NLY 0.62%). Annaly presents the best yield among the many corporations mentioned right here at 13.6%, and has averaged a yield of round 10% for the previous 20 years.

Through the first quarter, billionaire Jim Simons of Renaissance Applied sciences was an aggressive purchaser of shares of Annaly. All informed, Simons added 1.57 million shares, which elevated RennTech’s stake within the firm by a cool 195% from the tip of 2021.

Though the merchandise Annaly buys may be sophisticated, the mortgage REIT working mannequin is very easy to know. Mortgage REITs purpose to borrow cash on the lowest price potential and use this capital to buy higher-yielding long-term property, akin to mortgage-backed securities. The distinction between the common yield mortgage REITs obtain from the property they personal, minus their common borrowing price, is named their internet curiosity margin. The upper the online curiosity margin, often the extra worthwhile the mortgage REIT.

The wonderful thing about mortgage REITs is that they not often, if ever, supply surprises. When you hold an in depth eye on the rate of interest yield curve and Federal Reserve financial coverage, you may usually have a very good thought of how effectively or poorly the trade is performing. For the time being, issues are difficult for Annaly. The yield curve has flattened or, at occasions, inverted, and financial coverage has turned hawkish, which has elevated short-term borrowing prices.

Nonetheless, historical past has usually proven that purchasing mortgage REITs after they look their bleakest is a great transfer. For example, the rate of interest yield curve spends a disproportionate period of time steepening, not flattening. Plus, greater rates of interest will in the end be a optimistic for the yields on the MBSs Annaly buys sooner or later.

What’s extra, Annaly Capital Administration virtually solely buys company property.  “Company” securities are backed by the federal authorities within the occasion of default. Though this added safety does decrease the yields Annaly receives on the MBSs it buys, it additionally permits the corporate to prudently deploy leverage to pump up its income.

Revolutionary Industrial Properties: 7.24% yield

A second ultra-high-yield dividend inventory that one profitable billionaire cannot cease shopping for is cannabis-focused REIT Revolutionary Industrial Properties (IIPR -2.50%). Although IIP, as the corporate is extra generally identified, has the “lowest” yield on this listing, it must be famous that its quarterly payout has grown by 1,067% over the previous 5 years. 

The billionaire that fancied IIP in the course of the first quarter was none aside from Citadel’s Ken Griffin. No asset administration firm required to file a 13F bought extra shares of IIP within the first three months of the yr (somewhat over 296,000 shares) than Ken Griffin’s Citadel. The transfer enhance Citadel’s stake in IIP to virtually 305,000 shares.

The hashish REIT working mannequin is fairly much like a typical property REIT. On this occasion, IIP seeks to amass marijuana cultivation and processing services, and leases these property out for an prolonged time period. Whereas the corporate generates the majority of its progress from buying new properties, it does have a modest natural progress element in-built. It passes alongside inflationary will increase to its tenants on an annual foundation, in addition to collects a property administration payment that is tied to the bottom annual rental price.

In idea, the great thing about Revolutionary industrial Properties’ enterprise mannequin is that it is extremely predictable. As of the tip of June, it owned 111 properties spanning 8.6 million sq. ft of rentable area in 19 states.  Earlier this yr, the corporate famous that its average-weighted lease size was greater than 16 years. In different phrases, working money circulate must be extremely predictable.

However final week we discovered that surprises can and do happen within the REIT area. In a submitting with the Securities and Trade Fee, IIP introduced that its fourth-largest tenant, Kings Backyard, had defaulted on its July rental fee.  On one hand, this could possibly be an remoted incident, and IIP stays in talks with Kings Backyard to maybe transfer its lease to a different multi-state operator (MSO). Alternatively, it might characterize the start of significant points with U.S. MSOs. For the second, my cash is on the previous.

Apparently, Revolutionary industrial Properties additionally advantages from the shortage of hashish banking reform on the federal stage. Its sale-leaseback program buys properties for money and instantly leases mentioned properties again to the vendor. The sale-leaseback program gives money to MSOs, whereas netting IIP long-term tenants.

Picture supply: Getty Photographs.

Altria Group: 8.42% yield

A 3rd ultra-high-yield dividend inventory that billionaires cannot cease shopping for is tobacco large Altria Group (MO 1.72%). Due to its superior dividend, Altria has been one of many top-performing shares, on a complete return foundation, over the previous half-century.

Israel Englander of Millennium Administration is the billionaire in query who cannot cease gobbling up shares of Altria. Primarily based on first-quarter 13F filings, Englander’s fund added greater than 1.74 million shares to its current place. For context, Millennium’s stake in Altria Group stood at simply 121,429 shares on the finish of 2021.

There’s little denying that the expansion heyday for tobacco shares has come and gone. An organization like Altria, which is concentrated on the U.S. market, is dealing with an uphill battle. Improved client schooling relating to the adverse long-term results of utilizing tobacco, coupled with stringent promoting rules, has lowered the grownup smoking price within the U.S. by roughly two-thirds for the reason that mid-1960s.

However, Altria Group nonetheless has progress initiatives up its sleeve. As an example, few industries supply the unbelievable pricing energy that tobacco shares convey to the desk. Nicotine, which is present in tobacco merchandise, is an addictive chemical. This makes it comparatively simple for a corporation like Altria to boost the worth of its premium Marlboro model cigarettes with out dealing with any client pushback.

Altria can also be positioning itself to reach a world the place smoking alternate options thrive. Whereas its funding in vaping firm Juul hasn’t labored out as deliberate, Altria could have the chance to hunt further vape partnerships or create its personal vape merchandise.

Moreover, Altria took a 45% fairness stake in Canadian marijuana licensed producer Cronos Group in March 2019. Regardless that Cronos has struggled as a result of U.S. authorities failing to go federal legalization reforms, Altria seems well-positioned to help Cronos with advertising and marketing, distribution, and product improvement if and when marijuana is legalized on the federal stage.

Sure, Altria’s finest days are behind it. However with exceptionally robust pricing energy, ample capital to put money into smoking alternate options, and a beneficiant capital return program, it is an organization that can proceed to ship modest returns for long-term traders unafraid of investing in a vice inventory.