Editors’s Note: Related Tickers: Annaly Capital Management, Inc. (NYSE:NLY), CYS Investments Inc (NYSE:CYS), American Capital Agency Corp. (NASDAQ:AGNC), Home Loan Servicing Solutions Ltd (NASDAQ:HLSS), Anworth Mortgage Asset Corporation (NYSE:ANH)
We maintain a database of 13F filings from hedge funds and other notable investors for a variety of purposes. For one, this information is useful in developing investing strategies; we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year. We can also track top picks by individual managers in a number of areas, including stocks which pay high dividend yields according to current prices and recent dividend payments. Investors can then use these as initial ideas for further research. We have gone through the 13F for Brian Taylor’s Pine River Capital Management and here are five stocks it owned at the beginning of this year with high dividend yields (or see the full list of stocks Pine River reported owning):
The fund’s largest holding at the end of December was its nearly 24 million shares of Annaly Capital Management, Inc. (NYSE:NLY). Annaly- like most of the high yielders we’ll be discussing here- is a real estate investment trust. Such companies are required to distribute a large share of taxable income to shareholders in order to preserve their favorable tax treatment, and this often results in high yields. In the case of Annaly Capital Management, Inc. (NYSE:NLY) this yield is over 10%. However, the company invests in a variety of mortgage-backed securities and so it (and similar REITs) are not considered safe investments; we think that investors should avoid becoming too exposed to REITs particularly those which invest in MBS.
Taylor and his team sold a small portion of their shares in CYS Investments Inc (NYSE:CYS) though they still owned 8.2 million shares at the end of the fourth quarter of 2012. CYS currently pays a dividend yield just above 10%, though of course it too is a somewhat risky investment. In fact, quarterly dividend payments seem to be on a downward trend; in addition, the company only went public in mid 2009. Brookside Capital, a hedge fund which is part of the larger Bain Capital alternative investment firm, initiated a position of over 4 million shares during Q4 (find Brookside’s favorite stocks).
American Capital Agency Corp. (NASDAQ:AGNC), an $11 billion market cap company which invests in assets including mortgage pass-through securities and collateralized loan obligations, was another of Pine River’s high yield picks. Again, what is a high yield in percentage terms comes with significant risk, a fairly limited operating history, and a fairly recent cut in quarterly payments, though the opportunity is high enough that an income investor could certainly decide that the risk is worth it. Renaissance Technologies, founded by billionaire Jim Simons, was another major shareholder in American Capital Agency Corp. (NASDAQ:AGNC) (check out Renaissance’s stock picks).
According to the 13F, Taylor was buying shares of Home Loan Servicing Solutions Ltd (NASDAQ:HLSS) and closed December with 2.6 million shares in its portfolio. Home Loan Servicing Solutions services mortgages, so while it is not a real estate investment trust it is somewhat dependent on the mortgage market. The company began making monthly dividend payments only a year ago; the current yield is 7%. Billionaire Israel Englander’s Millennium Management more than doubled the size of its own position between October and December to a total of 2.4 million shares (research more stocks Englander was buying).
Pine River reported a position of 6.9 million shares in Anworth Mortgage Asset Corporation (NYSE:ANH), a REIT investing in mortgage backed securities with a market capitalization of about $890 million (over 1 million shares are traded per day). Quarterly dividend payments have been on the decline at Anworth, even over the last few years: payments peaked in mid 2009 at 32 cents per share, were 21 cents per share a year ago, and now sit at 15 cents. That does imply a dividend yield of close to 10% at current prices. As with the rest of these stocks, we think that investors should not get too excited about what is a risky dividend yield but it’s possible that REITs could be part of a larger income portfolio rooted in more established companies.
Disclosure: I own no shares of any stocks mentioned in this article.
