Co-authored with “Hidden Opportunities”

In the digital age, financial information has never been more accessible. With analysts, influencers, and bloggers readily sharing their trades, the financial landscape has become more navigable than ever before.

While it may still be challenging to discern your neighbor’s investment strategies, tracking the moves of billionaires, large institutions, and company insiders has become increasingly straightforward. The SEC mandates that institutional investment managers with at least $100 million in AUM (Assets Under Management) file a quarterly Form 13F. This report discloses their equity holdings, shedding light on the activities of the supposed “smart money” in the markets.

Why do the investment decisions of billionaires capture the imagination of Main Street? The involvement of a billionaire investor tends to bolster confidence in a stock among other investors. Many view successful investors as knowledgeable, skilled, and resourceful, and their actions often influence market sentiment. After all, no one makes moves intending to lose money, so if a wealthy investor has taken a long position in a stock, they must have conducted their due diligence and identified a positive long-term outlook.

Billionaires and institutional investors often engage in due diligence processes that involve meeting with CEOs and upper management before making significant investments. These discussions serve several key purposes, including the assessment of leadership, understanding the company’s strategy, evaluation of corporate governance, and building relationships. These are insights that the average individual investor wouldn’t typically have access to, but they can, to a certain extent, leverage the diligence done by affluent investors. Without further ado, let’s delve into three picks that prominent investors are currently accumulating.

KeyCorp Preferreds – A Fortuitous Pick with Yields Up To 7%

KeyCorp (KEY) ranks as the 16th largest banking institution in the U.S., managing $198 billion in AUM. The bank maintains adequate liquidity, boasts a solid capital base, and holds an A- rating on its senior long-term debt by Fitch.

Having increased its annual dividends since 2010, KEY’s current quarterly payment of $0.205/share translates to a 5.7% yield. Crucially, this dividend is sustained by a manageable 71% payout ratio (based on Q3 EPS).

KEY continues to witness growth in deposits, with 67% of them being insured or collateralized. The bank also maintains a quality Commercial & Industrial loan portfolio, with 50% investment-grade, and its CRE portfolio is primarily associated with multi-family housing.

Notably, billionaire Ken Griffin’s Citadel Investment Group has substantially raised its stake in KEY common stock by more than 400% to 22.21 million shares (worth $238.98 million). However, there is an alternative path to follow the billionaire’s lead on this one, offering additional income security.

KeyCorp has four classes of publicly traded preferred securities that pay Qualified Dividends and trade at deep bargain levels. These preferred dividends feature 8.3x coverage from the bank’s net income YTD 2023:

• 6.125% Fixed-to-Float Perpetual Non-Cumulative Preferred Stock Series E (KEY.PR.I) – Yield 6.7%
• 5.65% Fixed Perpetual Non-Cumulative Preferred Stock Series F (KEY.PR.J) – Yield 6.6%
• 5.625% Fixed Perpetual Non-Cumulative Preferred Stock Series G (KEY.PR.K) – Yield 6.4%
• 6.20% Fixed-to-Float Perpetual Non-Cumulative Preferred Stock Series H (KEY.PR.L) – Yield 7.0%

Verizon – A 6.3% Yield Amidst Reassuring Metrics

Verizon Communications Inc. (VZ) is considered one of the best “widow and orphan” stocks to buy, given the necessity of the telecom industry and the oligopoly in the U.S., with three major firms maintaining over 90% market share.

VZ made substantial investments in 2021 and 2022 towards its 5G spectrum bid, and the deployment and enhancement of fiber. This led to an increase in its debt levels amidst elevated interest rates, prompting concerns about the company’s dividend.

However, free cash flow paints a different picture, with Verizon expected to generate almost $18 billion in FY 2023 and ending the year with a 2.6x leverage ratio. VZ stock enjoys a 6.3% yield at a modest 61% FCF payout ratio and trades at a favorable 8.5x forward PE ratio. Verizon has also augmented its dividends for 17 consecutive years, and with growing FCF, shareholders can anticipate further payment increases in the years ahead.

During Q3, billionaires Israel Englander (Millennium Management), Ken Griffith (Citadel Investment Group), Jim Simon (Renaissance Technologies), and Paul Tudor Jones (Tudor Investment) significantly augmented their positions in VZ. The undervalued shares of VZ provide an appealing investment opportunity before the broader market catches on.

MO – Embracing a 9.7% Yield in the Midst of Regulatory Strife

Regulatory hammers, political talks, and social sentiment have cast a shadow over the tobacco industry’s investment appeal. Yet, it cannot be denied that this is an industry dominated by a few mega-cap corporations. However, the future of smoking is just one piece of the puzzle, and should retirement-funding smokers be the only beneficiaries of this legacy industry? Well-known investors see continued value in this industry, and so can we.

Altria Group, Inc: A Hidden Gem for Savvy Investors

Altria Group, Inc. (MO) stands as an unrivaled force in the world of combustible tobacco products, commanding exceptional pricing power and offering highly sought-after products.

Financial Dominance and Shareholder Returns

Over the past five years, Altria Group, Inc. has dished out over $30 billion in dividends and has repurchased shares amounting to $6 billion. The company recently upped its quarterly dividend by 4.3%, with an annualized dividend rate of $3.92 per share, equating to a tantalizing 9.7% yield. This dividend enjoys a robust 126% coverage from the guided EPS for 2023. With this recent dividend hike, the company solidifies its status as a Dividend King, having exhilarated its investors with 54 years of consecutive annual raises. In the first nine months of FY 2023, the company executed $732 million worth of share repurchases, with plans to utilize the remaining $268 million in its share repurchase program by Dec. 31.

Robust Financial Position and Billionaire Backing

Altria Group, Inc. maintains an investment-grade BBB balance sheet with a modest leverage of 2.1x, and possesses ample liquidity to bolster its “Moving Beyond Smoking” initiative. Notably, billionaires Cliff Asness (AQR Capital Management) and Steve Cohen (Point72 Asset Management) have significantly increased their stake in MO.

A Vote of Confidence

In the ever-evolving financial landscape, the endorsement of billionaire investors offers a potent affirmation. While blindly mirroring their decisions isn’t prudent, it’s impactful to acknowledge that deep-pocketed individuals share a similar optimistic outlook.

Dedicated to cultivating passive income through dividends, we proudly present a model portfolio comprising over 45 securities, with an overarching target yield of 9%. While the accord from esteemed billionaires provides a source of reassurance, we remain committed to exhaustive due diligence, actively steering our income portfolio, and embracing diversification for added security.

An Ode to Opportunity

Amidst the current market dynamics, dividend stocks stand as an alluring prospect, offering attractive yields and discounted valuations. Seizing these opportunities will nudge your financial vessel closer to the shores of financial freedom and beyond.