George Soros, founder of Soros Fund Management, otherwise known as the “Man Who Broke the Bank of England,” is a financial force to be reckoned with. He has been in the business since 1952 and successful enough to earn a spot among the world’s richest people (35th to be exact). Soros’ investing decisions may not have always been popular, like when he made $1 billion betting against the British pound sterling in the early 1990s, but they are usually effective.
To get an idea of what Soros is buying and why, I took a look at the top yielding stocks in his portfolio. In this article, I analyze whether any of those with dividend yields of over 5% are worth buying. My dividend-based analysis shows that MFA, CTL, VOD, MO, T, and VZ are all worth buying right now:
MFA Financial, Inc. (MFA): MFA is a real estate investment trust (REIT) specializing in mortgage backed securities. In the third quarter, Soros initiated a position with the company, buying 10,800 shares at an average price of $7.45. MFA is currently trading at $6.64 a share. Analysts have given the stock a one-year target estimate of $7.67, but with MFA, there is more than upside to think about. The stock also offers a $1.00 dividend, roughly 15% of its current trade price. MFA has a payout ratio of 99%, meaning that it pays out practically all its leftover income to shareholders as dividends. I like the high dividend. After all, if you bought 100,000 shares, it would cost $664,000 but it would pay for itself within 7 years as long as the dividend remains unchanged, regardless of actual stock performance. MFA’s dividends have been strong (as in over 18 cents a quarter) and relatively consistent since 2008, so it could be a good long-term hold. MFA has a beta of just 0.08, indicating that it doesn’t really move with the market, which could be a good thing if the recent market volatility continues. Looking at the stock’s performance over the last year, its shares have steadily declined since March but the company increased its dividend by 1.5 cents since then, so it clearly isn’t worried and neither am I. The dividend will offset most losses while the low cost and the promise of its upside is well worth the risk.
CenturyLink, Inc. (CTL): CTL is a communications company. It provides phone fixed line services, internet, data and video to businesses and consumers in the continental U.S. After increasing his stake in CTL during the second quarter by 45.68%, Soros reduced his position in the company by 30.81% in the third quarter. CTL has a dividend of $2.90, roughly 7.70% of its current share price of $37.25. Analysts have given the stock a one-year target estimate of $43.24. CTL has a payout ratio of 116%. I see lots of opportunity for CTL, especially with its acquisition of Qwest earlier this year (see the story here). The combination nearly doubles CTL’s fiber network access points. Network area is the contention point for communications companies. CTL’s acquisition of Qwest will help it compete in a way it would not have been equipped to before, which means increased earnings and, through synergies and economies of scale, reduced operating costs.
Vodafone Group Plc (VOD): VOD is a UK-based telecom company that provides mobile services worldwide. Soros increased his position in VOD by 78.18% in the third quarter. As of September 30, he had 307,000 shares in the company. VOD carried a price from $24.58 to $28.21 during the third quarter. It is currently trading at $27.29 a share. The company pays a 97 cent dividend, around 3.40% of its current share price. VOD has a payout ratio of 54%. I like VOD. It provides good mobile service world-wide and less expensively than many of its contemporaries. It has a strong and growing presence in developing markets like Africa and will soon receive a $4.5 billion payout from its joint venture with Verizon Wireless (VZ) (read more here). The plan is a win-win – VOD gets to up its U.S. presence while VZ gets to expand its national network. Everyone wins and with VZ offering the iPhone now, the sky is the limit if the pair can provide a strong and dependable network.
Altria Group, Inc. (MO): MO is the parent company of Philip Morris USA, U.S. Smokeless Tobacco Company, John Middleton, Ste. Michelle Wine Estates and Philip Morris Capital Corporation, owning internationally popular brands like Marlboro. During the third quarter, Soros bought a new position in the company of 35,500 shares, paying on average $27.01 a share. MO recently traded at $27.50 a share. Analysts expect the stock will reach $28.75 in the net 12 months. MO pays a $1.64 dividend, making a 5.90% dividend yield at its current price. MO pays out 93% of its leftover income to shareholders. MO “has enormous yield, a sky-high payout ratio, high leverage, and moderate earnings growth,” reports the Motley Fool. It still “exhibits a mediocre dividend bill of health,” but “given the company's significant leverage, dividend investors may want to make sure that they're confident in the company's earnings stability.” I think the company is good for a short-term play, but in the long-term, there are better options amongst so-called “sin stocks.” One of MO’s biggest weaknesses is its concentration on the U.S. markets. Sure, Philip Morris (PM) has a huge international presence but MO spun that division off a couple years ago. Now that more of its business is centered in the States, MO has to deal with changing attitudes about smoking. Selling wine helps but it probably isn’t enough to float the company. Until those attitudes start impacting the company, there is room for some upside, but I think investors would have to buy in soon to make that happen.
AT&T Inc. (T): T is a telecom company providing fixed line, data and mobile telephone services. During the third quarter, Soros reduced his stake in the company by 77.84%, leaving him with 378,642 shares in the company as of September 30. During the third quarter, T had an average price of $29.17. It is currently trading at $28.78. Analysts have given the stock a one-year estimate of $31.90. T pays a $1.72 dividend, for a dividend yield of 5.90% at its current price. The company pays out 87% of its earnings as dividends. T seems to be a good long term investment. It “has purchasing and pricing advantages that other telecommunication companies cannot match” (see the details here). T’s operating margins of 16.16% should expand as revenues per subscriber grow due to increased adoption of the iPhone (AAPL) and T as introduces cost-cutting initiatives. I think that T could cut marketing costs at this point as it has in the past due to its key first-mover advantage in adopting certain smartphones.
Verizon Communications Inc. (VZ): VZ is a fixed line, data and mobile telephone company. During the third quarter, Soros reduced his position in the company by 84.13%, leaving him with 202,053 shares in the company at the end of September. VZ pays $2 a share. Its dividend yield is 5.40% at its current price of $36.65. VZ pays out 94% of its leftover income to shareholders as dividends. Analysts expect VZ’s share price will reach $38.75 in the next year. VZ has the type of high dividends, expected growth rates and healthy price multiples that make it a good deal across the board – in the short term, it has a strong quarterly growth rate of 5.4%, while in the long term, its earnings are expected to grow 10.13% per annum over the next five years (see the details here). Look for VZ sales to increase dramatically as its expands its network. VZ has a strong national network but there are several high population areas where coverage is lacking. Its partnership with VOD should solve that.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.