If there’s one thing certain, it’s that markets are unpredictable – and that unpredictability is increasing. This past week has seen the sharpest day-to-day volatility on Wall Street since 2020. In an added complication, the reasons are multiplying: high inflation is rising higher, wages are not keeping up, Russia’s invasion of Ukraine has started Europe’s largest war since 1945, and energy and food commodities – key ingredients in the inflation mix – are sure to rise in price as a result of that fighting.
All of this is enough to get investors’ heads spinning. And it’s sure to have investors looking for some clear signal regarding stock choices. One source for such signals: the market’s legendary investors. The billionaire hedge managers have built up their funds to enormous dimensions, and made personal fortunes as well – and the average retail investor can take a page or two from those books.
Few names are as attached to such long-term hedge success as Izzy Englander. The founder of the Millennium fund – which he started with $35 million in 1989, now manages over $196 billion, and has a reputation for generating high profits. Even in the ‘corona year’ of 2020, Englander’s fund saw returns to investors of $10.2 billion. Englander himself has amassed a personal fortune of more than $10 billion.
Regular SEC filings show the moves that Englander has made, through the Millennium Fund. It’s interesting to note that he’s moving heavily into dividend stocks, the stock market’s traditional defensive play, and one that will naturally increase the return to investors.
We’ve used the TipRanks platform to pull up the details on two of recent buys, positions that he has seen fit to increase by wide margins, and offer dividends yields as much as 8%. Let’s take a closer look.
Arbor Realty Trust (ABR)
We’ll start with Arbor Realty Trust, a mortgage lender operating in the multifamily residence and commercial property market. Arbor works with both Fannie Mae and Freddie Mac, providing direct funding for their loans, as well as financing developers for multifamily residences.
Arbor focuses its efforts on large-scale loan securitization. In February, the company closed two such arrangements, the first for $2.05 billion and the second for $489 million. The securitizations ensure funding for multifamily real estate mortgage loans.
Also in February, Arbor reported its 4Q21 financial results, with good news for dividend investors. The company’s net income came in at $126 million, up from $112 million in the year-ago quarter. Distributable earnings were listed at 57 cents, and provided full coverage of the common stock dividend, which was declared at 37 cents per share. At that rate, the dividend annualizes to $1.48 per common share, and gives a yield of 8.19%. Importantly for investors, the dividend declaration marked the seventh quarterly increase in a row.
For a hedge manager looking to ensure returns, that kind of performance is sure to attract notice. And Englander’s fund bought 1,108,129 shares in ABR, per the most recent regulatory filing. These shares increased an existing holding by 750%, and are currently worth over $19.5 million.
Englander isn’t the only one bullish on this stock. Raymond James’ 5-star analyst Stephen Laws describes ABR’s Q4 results as exceptionally strong, and goes on to write: “Distributable EPS easily beat our estimate and adjusted book value increased 6% sequentially… We expect new origination activity for the balance sheet portfolio to remain strong, and we continue to expect this portfolio to feed the agency business as loans mature.”
“We are reiterating our Outperform rating to reflect the strong financial results, our expectation of continued portfolio growth, recent dividend increases, and a strong dividend coverage ratio,” the analyst added.
Laws’s Outperform (i.e. Buy) rating comes with a $24 price target, implying a 36% one-year upside to the stock. Based on the current dividend yield and the expected price appreciation, the stock has ~44% potential total return profile. (To watch Laws’ track record, click here)
While bullish, Laws’ view is no outlier – Arbor has a unanimous Strong Buy consensus rating based on 3 positive reviews. The shares are priced at $17.63 and their $21 average target suggests ~19% one-year upside. (See ABR stock analysis on TipRanks)
Physicians Realty Trust (DOC)
Next up is Physicians Realty Trust, a real estate investment trust (REIT) with a property portfolio made up of healthcare-related holdings. DOC buys, manages, and leases these properties, and the tenants are primarily hospitals, medical clinics, and physician practices. These properties, located across the continental US, boast an overall occupancy rate of 95%. Of the total properties, 246 are Medical Office Buildings (MOB), which hold 84% of the company’s total leasable square footage.
Physicians Realty completed a major acquisition this past December, when it added 14 MOBs from the ‘Landmark Portfolio’ to its own. These buildings, like DOC’s pre-acquisition holdings, are 95% leased; three-fourths the leases are to ‘investment grade’ tenants. The company paid a total sale price of $750 million to make the acquisition, and expects a first-year cash yield of 4.9% from the Landmark buy.
Not long after the Landmark acquisition, DOC declared its fourth quarter dividend for 2021. At 23 cents per common share, the payment marks the thirty-fourth consecutive quarterly dividend. It annualizes to 92 cents per share, which gives a yield of 5.4%. Dividend investors should note that DOC, in its Q421 report, listed total funds from operations (FFO, a key metric that supports the dividend) of 26 cents per share, making the current dividend rate sustainable for the company.
Clearly, Englander saw something attractive here; he increased his existing holding in Physicians Realty by a whopping 6,198%, through a buy of 1,972,817 shares. At current rates, these shares are valued at $33 million.
In his coverage of DOC, Berenberg analyst Connor Siversky agrees that DOC is a buying proposition. He writes: “DOC finished off 2021 in strong fashion, collecting virtually all its contractual rents while posting reasonable yoy same store NOI growth of 2.5%. Of note, DOC’s $750m Landmark portfolio acquisition in December pushed a total investment volume of just about $1bn for the year. Based on our estimates, we expect the portfolio transaction to add almost $37m in annualized NOI… DOC currently trades at a discount of 15.0% on P/2022E AFFO versus MOB dedicated peers.”
To this end, Siversky rates DOC a Buy, while setting a $19 price target that suggests an upside potential of ~13% in the next 12 months. (To watch Siversky’s track record, click here)
Overall, the analyst consensus here is a Moderate Buy, based on 8 reviews that include 3 Buys and 5 Holds. The stock’s $19.63 average price target implies an upside, for the coming year, of 17% from the current trading price of $16.76. (See DOC stock analysis)
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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.
