By Guest Author Insider Monkey. According to economic theory,
company insiders should avoid buying stock and in fact should generally tend
towards selling shares (and diversifying their wealth) unless they are
confident in the company’s prospects. Insider purchases should therefore signal
this confidence, and in fact studies generally show a small outperformance
effect for stocks bought by insiders (read our analysis of studies on
insider trading).
We track insider purchases and like to take a brief look at those where the
purchase is large enough to be significant to see if the company might be a
good buy.
Read on for our quick take on
five high yield stocks which at least one insider has bought recently:
AT&T
An AT&T [T] Board member’s
trust bought 9,000 shares of the company’s stock in late July. At current
prices and dividend levels, AT&T pays an annual yield of 5%; in addition,
the telecom giant is quite defensive with a beta of only 0.2. The company’s
financials are stable as well, with growth in wireless being canceled out by a
decline in the wireline segment resulting in total revenue and earnings only
changing by 1-2% compared to a year ago.
We also track hedge fund activity, including
through quarterly 13F filings; our research shows that the most popular small
cap stocks among hedge funds outperform the S&P 500 by an average of 18
percentage points per year (learn more about our small cap strategy), and our own small
cap portfolio based on hedge funds’ top picks has seen an excess return of 33%
in the last 11 months. According to our database, Phil Gross and Robert Atchinson owned nearly 7
million shares of AT&T at the end of March.
Freeport-McMoRan
Another large company where an
insider has been indirectly buying is commodities producer Freeport-McMoRan
Copper & Gold [FCX]. With the stock down 13% in the last year against a
market which has returned over 20%, the current dividend yield is now 4.3%. One
contributing factor to the stock’s decline has been market disapproval over the
company’s recent acquisition of two oil and gas companies; in addition to
normal integration risk, it’s possible that this diversification could weaken
management’s focus. Paulson & Co., managed by billionaire John Paulson, reported a position
of 9 million shares at the end of Q1. George Soros, Ray Dalio, and Leon Cooperman were also bullish
about the stock.
Philip
Morris
One of the members of Philip
Morris [PM]’s Board of Directors bought 1,000 shares of stock on July 23rd at
prices around $89 per share. The $150 billion market cap global cigarette
company offers a 3.8% dividend yield- lower than many other cigarette
companies, on the theory that there are still a good deal of growth
opportunities in international markets. With growth being weak in many
countries around the world, Philip Morris’s revenue and earnings decreased
modestly last quarter compared to the second quarter of 2012. Billionaire Ken Griffin is among PM
shareholders.
Digital
Realty Trust
An insider, as well as his
children, recently bought shares of technology use-focused real estate
investment trust Digital Realty Trust [DLR]. Because REITs receive favorable
tax treatment as long as they distribute a large share of taxable income to
shareholders, they often pay high dividend yields. Digital Realty Trust’s
annual yield is 5.7%, and unlike many REITs it has been consistently increasing
its dividend for years even through the financial crisis. We’d note that the
stock is down 21% year to date following a steep drop in July, but investors
who are not already too exposed to REITs may want to consider it.
Hersha
Hospitality Trust
Another real estate investment
trust which we’ve recorded an insider buying recently is Hersha Hospitality
Trust [HT]. Hersha, an owner of hotel properties, did not perform well during
the financial crisis and recession and so its dividend still has not recovered
to its levels from the middle of 2008. The yield is still somewhat high, at
4.3%, but given the other opportunities available in REITs it might not be
worth the risk. Ken Heebner’s Capital Growth Management initiated a position
of 6.3 million shares in Hersha between January and March.