One of the greatest things about putting your money to work on Wall Street is that there are countless strategies that can make you richer. Regardless of your risk tolerance or area(s) of focus, there are almost certainly individual stocks or exchange-traded funds that can help you grow your wealth.

But among these many strategies, few compare with the robust long-term returns generated by purchasing and holding high-quality dividend stocks.

Last year, investment advisory firm Hartford Funds, in collaboration with Ned Davis Research, released a report (“The Power of Dividends: Past, Present, and Future”) that detailed the various ways dividend-paying stocks have outperformed non-payers over lengthy timelines. In particular, companies that regularly pay a dividend have delivered a 9.17% annualized return over the last half-century (1973-2023), and did so while being 6% less volatile than the benchmark S&P 500. By comparison, non-payers produced a more modest 4.27% annualized return over 50 years and were 18% more volatile than the broad-based S&P 500.

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Despite this outperformance, Wall Street’s smartest investors are torn on which dividend stock can make investors richer. Based on recently filed Form 13F filings, which detail the trading activity of top institutional investors during the March-ended quarter, billionaire investors were especially active buying and selling ultra-high-yield dividend stocks. An “ultra-high-yield” stock is one with a yield that’s at least four times greater than the S&P 500 (i.e., higher than 5.35%).

The March quarter saw prominent billionaire money managers surprisingly sell two supercharged dividend stocks, while piling into another with a yield that’s near 15%!

Ultra-high-yield dividend stock No. 1 billionaires are selling: Realty Income (5.71% yield)

Arguably one of the biggest surprises following the filing of 13Fs last week was that some of Wall Street’s wisest billionaire investors dumped their shares of premier retail real estate investment trust (REIT) Realty Income (NYSE: O). During the first quarter, three billionaires sent this monthly dividend payer to the chopping block, including (total shares sold in parenthesis):

• Israel Englander of Millennium Management (507,406 shares)
• Ray Dalio of Bridgewater Associates (188,865 shares)
• Steven Cohen of Point72 Asset Management (161,835 shares)

Both Dalio and Cohen completely exited their fund’s stakes in Realty Income, whereas Englander’s fund reduced its position by 58%.

The culprit for this selling may very well be stubbornly high core inflation. Inflation remaining above the Federal Reserve’s long-term target can have two deleterious effects on Realty Income. First, there’s the real risk that higher shelter expenses could reduce discretionary spending and tip the U.S. economy into a recession. The first notable decline in U.S. M2 money supply since the Great Depression implies the economy is far more fragile than economic data suggests.

The other issue with above-average core inflation is that it compels the Fed to stand pat on interest rates. Investors may have little desire to risk their principal in REITs when they can net a roughly 5% yield from short-term Treasury bills. Realty Income’s yield of 5.7% isn’t much higher than what income seekers can generate from short-term T-bills.

But to say this selling is a mistake would be an understatement. Realty Income has an exceptionally well-diversified commercial real estate (CRE) portfolio that’s highly resilient to economic downturns and pressure from e-commerce. The company predominantly owns stand-alone CRE properties that cater to businesses which are capable of drawing in customers in any economic climate.

Furthermore, Realty Income has been actively diversifying its assets in recent years. It’s completed two deals in the gaming industry, recently acquired Spirit Realty Capital, and formed a joint-venture with Digital Realty Trust to develop build-to-suit data centers for lease.

Having raised its dividend in 107 consecutive quarters — the company’s 5.71% yield is based on a forward projection of its new monthly payout — Realty Income is potentially the safest and smartest REIT to buy right now.

Ultra-high-yield dividend stock No. 2 billionaires are selling: AT&T (6.38% yield)

The other extremely surprising ultra-high-yield dividend stock that billionaire investors were dumping in the first quarter is telecom titan AT&T (NYSE: T). A half-dozen prominent billionaires were sellers, including (total shares sold in parenthesis):

• Ken Griffin of Citadel Advisors (30,989,579 shares)
• Jeff Yass of Susquehanna International (9,691,096 shares)
• Israel Englander of Millennium Management (2,509,048 shares)
• Ray Dalio of Bridgewater Associates (2,127,612 shares)
• John Overdeck and David Siegel of Two Sigma Investments (272,857 shares)

The Fed’s hawkish monetary policy, which is the end result of stubbornly high inflation, might be the catalyst that enticed billionaires to sell shares of AT&T. Legacy telecom companies are typically lugging around quite a bit of long-term debt on their balance sheets, and AT&T is no exception — $132.8 billion in total debt, as of the end of March. With little near-term prospect for rate easing from the nation’s central bank, any future refinancing activity or deal-making could be costlier for the company.

Billionaires might also be leery of maintaining their positions in AT&T following the Wall Street Journal‘s report in July 2023 that suggested legacy telecom companies could face sizable cleanup and environmental/health-related liabilities tied to the use of lead-sheathed cables.

But similar to Realty Income, my belief is that these half-dozen billionaires will eventually regret paring down their stakes in AT&T.

Two years ago, when AT&T completed its divestment of content arm WarnerMedia, and that content arm merged with Discovery to create the media entity we know today as Warner Bros. Discovery, AT&T received a combination of cash and debt concessions that totaled $40.4 billion. In two years, it lowered its net debt from $169 billion to $128.7 billion. Though AT&T has work to do to make its balance sheet more flexible, the company’s high-octane dividend is safe.

Furthermore, the 5G revolution has been undeniably beneficial to AT&T’s operating performance. Upgrading its network to handle 5G download speeds has encouraged increased data consumption for wireless users. Meanwhile, the company is using 5G speeds as a dangling carrot to continually add broadband users.

The risk/reward profile for AT&T appears to strongly favor future upside.

Image source: Getty Images.

The supercharged monthly dividend stock billionaires can’t stop buying: AGNC Investment (14.55% yield)

But not every ultra-high-yield dividend stock found itself on the chopping block by billionaire asset managers during the March-ended quarter. Five top-tier billionaires (or six if you include the recently passed Jim Simons of Renaissance Technologies) piled into shares of high-octane mortgage REIT AGNC Investment (NASDAQ: AGNC), including (total shares purchased in parenthesis):

• John Overdeck and David Siegel of Two Sigma Investments (3,082,672 shares)
• Israel Englander of Millennium Management (1,565,333 shares)
• Ken Griffin of Citadel Advisors (794,311 shares)
• Jeff Yass of Susquehanna International (561,809 shares)

I can’t think of an industry that’s been more universally disliked by Wall Street analysts than mortgage REITs. These are highly interest-sensitive businesses that aim to borrow money at low short-term lending rates and put their capital to work buying higher-yield long-term assets, such as mortgage-backed securities (MBS). A rising-rate environment, along with an inverted yield curve, has been the worst possible scenario for the industry and AGNC. It leads to shrinking net interest margin and declining book value.

But there are tangible reasons to believe the worst will soon be over for mortgage REITs and AGNC Investment.

For starters, the Treasury yield curve spends a disproportionate amount of its time sloped up and to the right. This is to say that bonds maturing 30 years from now will have higher yields than Treasury bills maturing in a year or less. When the current yield-curve inversion ends, the expectation would be for AGNC to enjoy an expansion of its net interest margin.

Don’t overlook the importance of the Federal Reserve halting its MBS purchasing activity, either. Having the Fed out of the picture gives AGNC Investment and its peers a clear path to purchase lucrative, higher-yielding MBSs that can steadily increase the average yield of the assets it owns.

To top things off, all but $1.1 billion of AGNC’s $63.3 billion investment portfolio is tied up in liquid agency securities. “Agency” assets are backed by the federal government in the event of default. This protection affords AGNC the luxury of levering its investments in order to maximize its profits. It’s what’s fueling AGNC’s monthly dividend and otherworldly 14.6% yield!

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Sean Williams has positions in AT&T and Warner Bros. Discovery. The Motley Fool has positions in and recommends Digital Realty Trust, Realty Income, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.