Billionaire Jim Simons is betting on 3 high-yield dividend stocks
A rising tide lifts all boats, as President John Kennedy said, and we see it now on Wall Street as both the S&P 500 and NASDAQ hit near record highs. The gains are broad and real, reflecting growing optimism now that the elections are behind us and a COVID-19 vaccine is in sight. So let’s look back to 1973, when economist Burton Malkiel told us, a blindfolded monkey throwing arrows at the financial pages of a newspaper could pick a portfolio that worked just as well as one carefully selected by the experts. “He pointed out the effect of random forces on a sufficiently large sample – and the stock market, with over 7,000 publicly traded stocks and even more thousands of active traders working daily, is definitely a sufficiently large sample. But that was before mathematician and code breaker Jim Simons taught us all how to crunch the numbers. Simons realized that humans are not monkeys – and therefore have access to information that goes beyond random effects. He invented quantitative trading and forever changed the investment landscape. And in the present, Simons revealed three new equity positions in his most recent 13F filing that should be looked at. These are stocks with a buy rating that have a dividend yield of at least 5% and rise from there. We used the TipRanks database to find out what else makes these choices so compelling. First up is Plains GP Holdings (PAGP) Plains GP, a midstream oil and gas holding company. Plains controls assets in the oil and gas transportation sector, where the hydrocarbons are transported from the wellhead manufacturing facilities to the refineries, storage tank farms and transportation facilities. The company’s assets include almost 30,000 km of pipelines, 8,000 crude oil tankers, almost 2,500 trucks and tractor units, as well as 20 transport tugs and 50 barges on the rivers. These assets move oil and gas into and out of storage capacities valued at 148 million barrels. PAGP was hit hard earlier this year by declines in oil and gas prices and lower demand during the economic stalemate triggered by the pandemic. By the second quarter, sales had more than halved to $ 3.23 billion. The top line of the third quarter shows the beginning of a recovery with sales of $ 5.83 billion. The EPS of the third quarter remained unchanged sequentially at 9 cents. The company’s share price, as expected from financial performance, has not gained much traction since falling last winter at the start of the corona crisis. PAGP’s shares are down 52% so far this year. However, the low share price offers investors an opportunity. Jim Simons would definitely agree. His fund took a position in PAGP by buying 1,045,521 shares of the stock. The investment is valued at USD 8.44 million at the current share price. Plains GP has maintained its commitment to the dividend. The company cut the payment for paying from 36 cents per share to 18 cents in April, but has kept it at that level since then. The cut prevented returns from exploding as the stock price fell and kept the payment affordable at current income levels. The current payment is 72 cents per common share for a yield of 8.3%. Justin Jenkins, an analyst at Raymond James, likes Plains for its cash-generating ability. He writes: “PAGP’s cash flow profile has actually improved this year. While EBITDA will face more headwinds in 2021 than in 2020, lower capital spending and cost-cutting measures implemented since the pandemic are still leading to an FCF inflection. We are now modeling planes that generate an all-in FCF excess […] We continue to believe the partnership’s outlook is much better than recent investor sentiment for the stock. “Consistent with these comments, Jenkins rates PAGP as a buy. Its target price of $ 9 suggests there is room to grow ~ 10% from current levels. (To check out Jenkins’ track record, click here A total of three recent PAGP valuations are registered, and all of them are buys. This makes the analyst consensus here a unanimous strong buy. The stock sells for $ 8.17, and the average price target of $ 10 implies a year-long uptrend of $ 22 %. (See PAGP stock analysis on TipRanks) Granite Point Mortgage Trust (GPMT) Next, Granite Point Mortgage Trust is a mortgage lending company serving a U.S. customer base. The company invests in senior floating- the company’s portfolio is worth more than $ 1.8 billion. GPMT shows some solid messages regarding recent financial performance, with the company beating earnings forecasts d reported 27 cents a share against a 20-cent estimate for a slap of 35%. Revenue increased year over year and the company ended the quarter with more than $ 353 million in cash. That foundation allowed GPMT to hold on to its dividend, even though the company had adjusted the payment to 20 cents per common share. At this rate, it annualizes to 80 cents and gives a whopping 8.3%. This is cheap compared to comparable companies in the financial sector – and more than four times higher than the average dividend among companies listed on the S&P exchange. Granite Point is another new position from Jim Simons. The quant billionaire bought 155,800 shares of this real estate investment trust (REIT) for $ 1.48 million. Stephen Laws, who covers that stock for Raymond James, sees GPMT as a potential winner for dividend investors. He writes, “We expect net interest income will continue to benefit from tiered LIBOR loans and are increasing our core earnings estimates to reflect this. While GPMT reintroduced the quarterly dividend of $ 0.20 per share, the company still has undistributed taxable income of approximately $ 29 million as of September 30. With this in mind, we expect a special dividend of $ 0.40 per share to be declared before year end. “The 5-star analyst rates the stock as outperforming (ie buying) and his target price of USD 11 implies growth of 16% over the next few months. (To see Laws’ track record, click here.) This is another stock with an unanimous analyst rating – though the two most recent buys make the consensus view a modest buy. The average price target corresponds to Laws at USD 11 and shows an upward movement of 16% compared to the current trading price of USD 9.60. (See GPMT stock analysis on TipRanks) Phillips 66 (PSX) Last on our list of Simons’ new acquisitions is Phillips 66, the oil and gas giant. With annual sales of over $ 107 billion and total assets of more than $ 58 billion, Phillips 66 is heavily involved in oil exploration, refining and marketing. The company is also well represented in the petrochemical industry. Low prices, economic stagnation, and unpredictable demand have put pressure on PSX stock this year, and the stock has only partially recovered from last winter’s swoon. PSX is down 40% since the start of the year but is up 54% since the end of March. In the third quarter, Phillips 66 posted a 1 cent EPS loss – but that was far better than the 80 cents loss had been predicted. Revenue for the quarter was $ 15.93 billion, an increase of 45% over the previous quarter. The company pays 90 cents per common share and has an 8 year history of sustaining reliable payment with occasional increases. The annualized payment of $ 3.60 gives a return of 5.4%, which is well above the average return for the utility sector of 3.3%. For his part, Simons was impressed enough with the stock to buy 120,800 shares. That’s a $ 7.47 million stake. In his PSX note, Scotiabank’s Paul Cheng makes a few key points, including some that may seem counterintuitive. “Passing Election Day can lead to new acquisitions in the group even if Biden wins. Contrary to popular belief, the sector historically outperformed the general market in the first year of a new democratic government … cyclical sectors may be in demand again as investors focus their attention on vaccine availability from choice, ”said Cheng. The analyst added, “… PSX should benefit more from a rising oil price environment than other refineries due to their large chemical and NGL activities.” To this end, Cheng rates PSX as outperforming (i.e. buying). He sets a target price of $ 79, indicating upside potential of 25% over the next 12 months. (To see Cheng’s track record, click here.) Overall, Wall Street gave Phillips 66 a broad thumbs-up – as indicated by the stock’s 11 buy ratings, suggesting a strong consensus among buy analysts. (See PSX stock analysis on TipRanks.) To find great ideas for trading dividend stocks at attractive valuations, visit TipRanks ‘Best Stocks to Buy, a newly launched tool that brings together all of the insights into TipRanks’ stocks. Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.