In this article, we present to you the 10 Extreme Dividend Stocks with Huge Upside. If you’re in a hurry, click to skip ahead and jump to the 5 Extreme Dividend Stocks with Huge Upside.
Many Americans believe that living off passive income is the ultimate goal and investing in dividend stocks may be the answer to that. We believe that dividend stocks should be integrated into any portfolio for asset growth and risk optimization. In this article, we will focus on extreme dividend stocks with huge upside. In our previous article, 15 Best Dividend Stocks with Upside Potential, we also analyzed dividend stocks with upside potential but those stocks had lower risk and lower yield.
Before we breakdown the list, let me give you a brief background on dividend stocks. Dividend stocks are passive investments where you will be able to collect payment on regular intervals through dividends; monthly, quarterly, annually. Historically when you invested in dividend stocks long enough, you were able to collect regular dividends and enjoyed large capital gains as well. Say for example, in early 2020 Apple’s (AAPL) dividend yield was 1.5%. If you invested during that time, you would have earned 1.5% in dividends annually, but also enjoyed capital gains of more than 100%.
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Choosing the right stock has become more challenging with the arrival of the global pandemic. Which is why it is important to choose a stock with long histories of dividend payments. Often, hedge funds invest in dividend stocks not because they need these dividends but because they think these dividend stocks are undervalued and more likely to outperform the market. Their main goal is to generate capital gains.
Companies that pay dividends are usually stable companies with good financial fundamentals that are committed to rewarding their shareholders even during these times. For example Johnson and Johnson (JNJ) has not only survived in its 133-year history, it has thrived. In April, the company announced a 6.3% hike to its payout in April, $1.01 per share quarterly.
Despite the economic downfall, companies in the S&P 500 paid out $58.28 per share in dividends in 2020, a 0.7% increase compared to last year’s record of $58.24. According to S&P Dow Jones Indices, nearly 84 percent of companies in the S&P 500 index pay dividends.
In line with this, the Federal Reserve is committed to keeping interest rates low for an extended period of time or nearly zero until 2023. We believe the 10-year Treasury bonds’ cumulative yield will be less than the potential average inflation rate for the next 10 years. That’s why we prefer investing in dividend stocks instead of fixed income securities.
In order to identify the 10 Extreme Dividend Stocks with Huge Upside, we started with the 25 holdings in the Global X SuperDividend ETF (SDIV) as of January 6, 2021, and we were able to narrow down our list to 10 stocks by using our hedge fund sentiment scores.
Our in-house analysis shows that we can use the sentiment information gathered from the hedge fund filings to classify in advance a select group of stocks that can beat the S&P 500 index by double digits annually on average. For instance, the portfolio of our monthly newsletter’s stock picks has beaten the market by over 88 percentage points since March 2017 (see the details here). Some of the portfolio holdings of our monthly newsletter have been shared publicly too. In October, we shared this real estate stock and since then, it’s been up nearly 50 percent.
Based on our hedge fund sentiment data, we present to you, the 10 Extreme Dividend Stocks with Huge Upside among the 800+ hedge funds by Insider Monkey:
10. Chimera Investment Corporation (NYSE:CIM)
No of HFs: 20
Total Value of HF Holdings: $80 Million
If you are into real estate investment trusts, you probably have already heard of the tenth extreme dividend stock with huge upside potential, Chimera Investment Corporation. The company focuses on investing directly and indirectly in residential mortgage loans, residential mortgage-backed securities, real estate-related securities, and other asset classes. During the third quarter of 2020, the company reported a GAAP net income of $1.32 per common share.
The top hedge fund holder of this stock is Leon Cooperman’s Omega Advisors, which had over $27 million invested in the stock at the end of September. An insider recently purchased 50,000 shares at around $8. The stock is up 25% since then. CIM offers a 11.86% dividend yield at the moment.
9. Waddell & Reed Financial Inc. (NYSE:WDR)
No of HFs: 21
Total Value of HF Holdings: $116 Million
WDR ranks 9th in our list of the extreme dividend stocks with upside potential. WDR has been around since 1937 and has been a publicly-traded company since 1998. Since the company was founded they have consistently been serving their clients’ financial needs to prepare for the financial future. Recently, the company announced that they have entered a merger agreement with Macquarie Asset Management, under which Macquarie would acquire all outstanding shares of WDR for $25 per share in cash representing total consideration of $1.7 billion.
The top hedge fund holder of this stock is Mario Gabelli’s GAMCO Investors, which had over $19 million invested in the stock at the end of September. WDR current shares are $27 and offer a dividend yield of 4.00%
8. Blackstone Mortgage Trust, Inc. (NYSE:BXMT)
No of HFs: 24
Total Value of HF Holdings: $138 Million
BXMT ranks 8th in our list of the extreme dividend stocks with upside potential. The real estate finance company, Blackstone Mortgage Trust, Inc focuses on senior loans collateralized by commercial properties located in the US and Europe. During the third quarter of 2020, the company reported a quarterly earnings of $0.63 per share as compared to $0.64 per share during the same period of 2019.
The top hedge fund holder of this stock is John Armitage’s Egerton Capital Limited, which had over $87 million invested in the stock at the end of September. BXMT current shares are $26 and offer a dividend yield of 9.37%.
7. Iron Mountain, Inc. (NYSE:IRM)
No of HFs: 25
Total Value of HF Holdings: $112 Million
IRM ranks 7th in our list of the extreme dividend stocks with upside potential. The company is known for providing storage, protection and management for records management, data backup and recovery document management. On December 18, 2020, John Tomovcsik, EVP and COO of IRM announced that he has sold 41,235 shares of the stock at an average price of $29.63 per share. The total sale amounted to $1.2 million.
The top hedge fund holder of this stock is Israel Englander’s Millennium Management, which had over $29 million invested in the stock at the end of September. IRM offers a 8.67% dividend yield at the moment.
6. Artisan Partners Asset Management (NYSE:APAM)
No of HFs: 26
Total Value of HF Holdings: $271 Million
The global investment management firm, Artisan Partners Asset Management offers high value-added investment strategies. They are an investment adviser registered with the US Securities and Exchange Commission. During the third quarter of 2020, the company’s revenue grew 15% compared to the second quarter of the year. You can download a copy of one of their recent investor letters here.
The top hedge fund holder of this stock is Jim Simons’ Renaissance Technologies, which had $102 million invested in the stock at the end of September. An insider purchased 8,075 shares at around $22. The stock is up 136% since then. APAM offers a 6.43% dividend yield at the moment.
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Disclosure: No positions. 10 Extreme Dividend Stocks With Upside is originally published at Insider Monkey.