By Eric Winter
Picking the right stock can often mean choosing which one will appreciate the most by year end. However, there is more to the story for those seeking consistent income in their allocations. Billionaire and Goldman alum Leon Cooperman of Omega Advisors recognizes this, and employs a part of his $5bn fund into high-paying dividend stocks. Investment trusts dominate this list, as government regulations require these publicly-traded entities to distribute a high amount of their earnings to keep their favorable income tax structure. Read on to see which stocks are giving abnormally large returns to Cooperman and his investors.
Two Harbors Investment Corp (TWO) starts out our list and stands as Cooperman's highest-paying dividend stock with an incredible yield of 17.6%. The company's lower stock price (around the $12 range) and higher payouts of $0.36 to $0.55 generate such a high number. Despite consistently poor earnings reports, the real estate investment trust rode the improved real estate market of 2012 to give investors an additional 26% gain in stock value, proving to be a winner on both the income and growth fronts. Brian Jackelow of Sab Capital Management is also a fan, with over $115mm invested (check out his other holdings here.)
Another REIT, Resource Capital Corp, (RSO), makes the list as well, and with a dividend yield of 12.7%, the payout is quite respectable, although less than Two Harbor's. RSO's main areas of focus are in commercial real estate as well as loan financing and acquisitions. Although last quarter's earnings and revenue growth were both positive, we feel the extremely small-cap is not suited for all investors, so seek value in perhaps larger or more established companies. Billionaire Jim Simons matches Cooperman's investment - read more here to determine Renaissance Technologies other small-cap picks.
Not surprisingly, AG Mortgage Investment Trust (MITT) is an addition to this list, paying a roughly equivalent dividend to that of Resource Capital's. However, with positive earnings and overwhelming support from analysts, MITT proved itself to be the better performer last year, delivering almost 35% appreciation versus RSO's meager 5%. MITT operates more on the residential real estate side, primarily acquiring mortgage assets and other securitized investments. MITT has the highest dividend rate of this list, coming in at an impressive 3.20. Billionaire Israel Englander of Millennium Management fame holds almost over 50,000 shares - see what else this magnate holds here.
Chimera Investment Corporation (CIM) is another diversified REIT on the list, although their main focus lies more in mortgage-backed securities and tranched loans versus actual real property investments. The trust carries a market cap of $3bn, putting it into the small-cap range, and its 11.5% dividend yield is not far off from MITT's or RSO's. However, the weak growth in revenue and earnings and sub-$5 price tag put this stock in penny stock territory, which we are not excited about.
Surprisingly, Cooperman's last top dividend-paying stock on our list is not a REIT, although it is still an investment company. THL Credit, Inc. (TCRD) is a closed-end management company that negotiates both debt and equity investments for middle market businesses to capture growth and income streams. TCRD matched the S&P's trailing twelve month's performance almost exactly, all while paying out an 8.9% dividend yield to investors. Wall Street analysts remain confident in TCRD's investment management abilities, seeing a 4% growth in stock price a year out from current levels. Two Sigma Advisors recently saw a large jump in their position size to over $4mm - click here to see where else this quantitative fund invests.