“If investing is entertaining, if you're having fun, you’re probably not making any money. Good investing is boring.”
The words are George Soros’, and whatever you may think of his politics or activism, it is impossible to deny that he is one of the world’s greatest stock market investors. In some 30 years of active trading, his hedge fund saw an annualized average return exceeding 30%; it was one of the greatest runs of sustained profits in Wall Street’s history. Soros ran his hedge fund behind the scenes, building a portfolio based on reliable dividends and solid returns.
He has continued that strategy in recent years, after taking his firm private. Considering his aphorism, ‘Good investing is boring,' it’s no wonder that Soros gravitates toward stocks with proven returns. His recent new positions simply bear this out, as Soros has bought into three stocks considerable return potential – dividend yields of 4.5% or better and upside potential starting at 15%, according to the analyst community.
With this in mind, we used TipRanks database to find out what else makes these picks so compelling.
Blackstone Mortgage Trust (BXMT)
The first Soros pick we’re looking at is Blackstone Mortgage Trust, a real estate investment trust. It’s no wonder that Soros turned to BXMT if he was looking for dividend returns – REITs are well known for their high-yield dividends. Blackstone, which holds a portfolio exceeding $167 billion in real property assets under management, focuses on collateral-based senior mortgage loans in the Western markets: North America, Europe, Australia.
After a hard hit in Q1, due to the coronavirus crisis, Blackstone’s Q2 report gave investors a pleasant surprise by beating expectations on both revenues and EPS. While the top line came in at $107.1 million, or 1% above the forecast, the per-share earnings of 56 cents showed a stronger beat of 14%.
In a display of confidence, the company has kept its dividend payment stable through the chaotic first half of the year. The 62-cent quarterly dividend was paid out in mid-July, and at $2.48 per share annualized, it offers investors a robust 10.3% return. That’s more than 5x the average found among S&P listed stocks – and 4x the average found among peer companies in the financial sector.
High returns are always an attraction for Soros, and he initiated his position in BXMT with 355,000 shares. At current share prices, these shares are worth more than $8.5 million.
Analyst Donald Fandetti, covering BXMT from Wells Fargo, sees reason for optimism in Blackstone’s balance sheet, and what that means for the dividend. He writes, “Reflecting a competitive advantage, BXMT was able to raise $607 mm of debt and equity capital in the quarter, boosting their liquidity to $1.3B (mostly cash). This puts them in a position to go on offense as high return opportunities begin to arise… We believe BXMT will continue paying their quarterly dividend unless the economic situation deteriorates further…”
Fandetti’s comments back up his Overweight (i.e. Buy) rating, and his $33 price target suggests a 37% upside for BXMT in the coming year. (To watch Fandetti’s track record, click here)
Overall, Blackstone Mortgage has a Moderate Buy rating from the analyst consensus, with 5 recent reviews breaking down to 2 Buys and 3 Holds. Shares are selling for $23.79, and the $27.75 average price target implies a 15% upside potential. (See BXMT stock analysis on TipRanks)
Truist Financial (TFC)
Formed this past December, through a merger between SunTrust and BB&T, Truist is the eighth largest bank holding company in the US. Its main subsidiaries operate over 2,000 bank branches in 17 states, with company headquarters in Charlotte, North Carolina. Like many banks with a reliance on brick-and-mortar retail branches, the company’s shares saw heavy depreciation during the corona crisis, and have only partially recovered.
Through the hard 1H20, Truist paid out its dividend regularly, at 45 cents per common share. The most recent declaration, from August 13 for a September 1 payment, continues that reliability. The 45-cent payment gives a yield of 4.5%, strong by any standard, and made better by the company’s reliable payment history.
Soros’ fund took the bank merger as an opportunity to buy into a larger bank with greater resources. The billionaire’s fund bought 498,669 shares of TFC, a holding now worth $19.74 million – hardly chump change, even for George Soros, and an indication of a commitment to the new holding.
Wall Street agrees that TFC is a buying proposition. Wolfe Research analyst Bill Carcache rates the stock an Outperform (i.e. Buy) rating, and his $52 price target indicated confidence in a 31% upside potential. (To watch Carcache’s track record, click here)
Backing his stance, the 5-star wrote, “We see opportunity for TFC to drive CET1 closer to peer levels as we move beyond near-term merger execution and COVID-19 related risks. TFC’s medium-term CET1 target of 10% appears conservative relative... By our math, each 50bp reduction in CET1 would translate into an ~90bp improvement to ROTCE.”
TFC's Moderate Buy analyst consensus rating on Truist comes from 7 reviews, including 5 Buys and 2 Holds. The average price target of $45.86 implies a 16% upside from the trading price of $39.12. (See TFC stock analysis at TipRanks)
US Bancorp (USB)
Last up on today’s list is another bank holding company, US Bancorp. The parent company of US Bank, and based in Minneapolis, Minnesota, US Bancorp is the fifth largest of American banks, providing banking, investment, and mortgage services to individuals, small and medium business, and government entities, mainly in the Midwest and West. The company boasts over 3,000 branch locations and 4,800 ATM machines across is service area, and a market cap of $56 billion.
The large network and deep pockets came in handy for the company during 1H20, when earnings dropped from $1.08 in Q4 to 41 cents in Q2. Revenues grew slightly during the same period, from $5.6 to $5.8 billion. The social shutdowns and consequent reduction in traffic at branches cut into day-to-day business. The second quarter saw business recover to a degree, with a 7% gain in total loans and an 11% gain in average deposit balances.
The company’s regular quarterly dividend was paid out in mid-July at 42 cents, the fourth quarter in a row at this rate. The $1.68 annualized payment gives the dividend a yield of 4.5%, and the company’s 11-year history of regular dividend increases gives it a clear attraction for return-minded investors.
Clearly, Soros would agree. His fund staked a position in USB by buying 614,294 shares of the stock. The holding is worth $22.85 million at the current share price.
Turning to Wall Street, Chris Kotowski, a 4-star analyst with Oppenheimer, sees USB as well-adapted for the current 'coronavirus environment.
“USB remains the "flight to safety" name in the space as the diversified model is able to generate pre-provision earnings that could handily fund future potential reserve builds without diluting TBV… UBS guided to a stable revenue and expense outlook. NII is expected to be flat in 3Q20 compared to 2Q20, mortgage banking could be up Y/Y but lower than 2Q20, and payment is trending up due to the gradual re-opening of economy. USB also expects non-interest expense to be stable in 3Q20 vs. 2Q20 and FY2020 tax rate of 15%," Kotowski opined.
To this end, Kotowski rates USB shares an Outperform (i.e. Buy), which is supported by a $75 price target that implies an upside potential of 101% for the coming year. (To watch Kotowski’s track record, click here)
All in all, US Bancorp holds a Moderate Buy rating from the analyst consensus, based on 6 Buys, 4 Holds, and 1 Sell set in recent weeks. The stock is selling for $36.82, and the $44.40 average price target suggests it has room for 21% growth in the next 12 months. (See USB stock analysis on TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.