3 high-dividend stocks that executives love

Who cares what the financial experts are talking about? Show us the money. Show us what the insider scoop up!

Insider buying is generally more predictive than insider selling. C-level people might sell stock to buy new boats or bribe their kids into college. (Ha!)

But when these guys and girls buy, it’s for one reason only: They believe the price of their stocks is undervalued and that’s because the price is rising.

Insider buying has been quiet lately. That’s no surprise: The market regularly hits new highs, and many executives are nervous about buying when their stocks are at or near all-time highs.

However, I have my eye on some insider purchases from some of the best Wall Street companies. These companies are generating returns of 6.4 to 12.3 percent. These insider buyers are not only convinced that their share price will rise. They Also believe in the dividend.

Let’s start with a dividend of 6.4%. four of its big bosses who bought in May.

Sunoco LP (SUN)

Distribution yield: 6.4%

Recent notable purchases:

• Chairman Joseph Kim: 5,000 shares (252,516 USD) on May 23, 2024
• Chief Sales Officer Brian A. Hand: 2,000 shares ($99,180) on May 24, 2024
• Chief Operating Officer Karl R. fails: 3,000 shares (150,540 USD) on May 24, 2024
• Chief Commercial Officer Austin Harkness: 1,000 shares ($49,740) on May 29, 2024

Sunoco LP (SUN)a Master Limited Partnership (MLP) that distributes fuel to approximately 10,000 convenience stores, independent dealers, commercial customers and distributors in more than 40 states. And if the name sounds familiar, then it is associated with Energy transfer LP (ET)– More specifically, Sunoco’s general partner is ET’s subsidiary Energy Transfer Operating LP.

And in May, Sunoco insiders went on a shopping spree, buying over half a million dollars worth of SUN shares.

The question is: Why?

Insiders don’t usually tell us why they’re buying, so we have to read the signs of the times. For example, Sunoco’s first-quarter 2024 results released in early May were decent, and the company forecast higher adjusted EBITDA in 2024. And a few days earlier, Sunoco raised its payout — up 4% to 87.56 cents per share — for the second time in a year. (That’s all the more important because before 2023, SUN hadn’t improved its payout since 2016.)

However, I tend to believe that it is more likely due to two other factors.

For one thing, SUN shares fell to their lowest level since 2023 at the end of May – a good moment for anyone waiting to buy on dips.

There may also be optimism surrounding the company’s $7.3 billion acquisition of NuStar Energy LP, which closed on May 1. NuStar, whose assets include 9,500 miles of pipeline and 63 terminals, is expected to give Sunoco a growth path in the Midwest and provide additional geographic diversity (Sunoco does not have a strong presence in the region). NuStar also has a Permian oil gathering system and growing ammonia and renewable energy businesses.

There’s plenty of potential, but there are still some questions to be answered. Sunoco is still evaluating the extent to which commercial synergies are possible. And management has indicated that it is trying to increase the value of its crude oil business. While it will not sell the assets outright, it is open to options such as a joint venture.

I would also like to point out that Sunoco is an MLP, which has the added complication of a K-1 tax form, which I am trying to avoid.

Granite Ridge Resources (GRNT)

Dividend yield: 7.4%

Recent notable purchases:

• Director Michele J. Everard: 1,000 shares ($6,620) on May 20, 2024
• Director John F. McCartney: 1,007 shares (6,590 USD) on May 21, 2024
• Director Griffin Perry: 2,000 shares ($13,080) on May 23, 2024
• Director John F. McCartney: 500 shares (3,275 USD) on May 23, 2024
• Director Matthew Reade Miller: 7,700 shares ($50,050) on June 3, 2024
• Director Thaddeus Darden: 3,000 shares ($18,870) on June 6, 2024
• Director Matthew Reade Miller: 8,500 shares (50,150 USD) on June 14, 2024
• Chairman Luke C. Brandenberg: 5,000 shares ($29,650) on June 14, 2024
• Director Thaddeus Darden: 7,000 shares (41,300 USD) on June 14, 2024

Granite Ridge Resources (GRNT) is an oddball among energy companies from top to bottom.

Granite Ridge describes itself as a “hybrid” company – part oil and gas company, part private equity firm. In fact, it doesn’t operate anything. Instead, it invests in a diversified portfolio of production and acreage in the Permian Basin, Eagle Ford, Bakken, Haynesville and DJ Basin.

Instead of drilling wells and producing oil itself, Granite Ridge instead invests in more than 80 public and private hydrocarbon operators to do the work for it.

It’s also worth noting that this is a newer company—one that went public not through an IPO but through a special purpose acquisition company (SPAC). Investment firm Grey Rock Investment Partners merged with Executive Network Partnering Corporation (the SPAC) in October 2022.

GRNT’s results since its IPO have been disastrous. Even with a generous dividend, shares have lost more than a third of their value – and this at a time when the energy sector was only just breaking even.

Insiders bought about $30,000 worth of shares from mid- to late May, when the price was stagnant, and then started to strike in earnest in June, when the price crashed, with purchases totaling $190,000.

It’s difficult to see any catalysts on the horizon. And the company’s financial profile is mixed. Granite Ridge’s short track record does include decent production growth, and the company has fairly low leverage at just 0.4x net debt to adjusted EBITDAX. But the company has gone from $51 million in net cash at the end of 2022 to $117 million in net debt at the end of the first quarter of 2024. Meanwhile, first-quarter earnings of 12 cents per share barely covered the 11 cent dividend, while the company actually burned through $1 million in cash during the quarter.

Most investment opportunities in the oil and gas sector are heavily dependent on commodity prices, which can make for a bumpy ride. Add to that an opaque, private equity-like structure that doesn’t make things any easier – especially when we can get similar returns from simpler energy investments.

Claros Mortgage Trust (CMTG)

Dividend yield: 12.3%

Recent notable purchases:

• Director Vincent Salvatore Tese: 6,000 shares (43,581 USD) on May 23, 2024
• Director Vincent Salvatore Tese: 1,000 shares (8,248 USD) on May 23, 2024
• Chairman of the Board Michael J. McGillis: 15,010 shares (110,172 USD) on May 24, 2024
• CEO Richard Mack: 44,000 shares (319,000 USD) on May 28, 2024
• Chief Counsel Jeffrey D. Siegel: 5,000 shares (36,150 USD) on May 28, 2024
• CEO Richard Mack: 116,000 shares (832,880 USD) on May 28, 2024
• CEO Richard Mack: 40,000 shares ($276,000) on May 29, 2024

Claros Mortgage Trust (CMTG) is a member of one of the most profitable industries in the market: mortgage real estate investment trusts (mREITs). Claros specializes in originating senior and subordinated loans for “transitional” commercial real estate, including multifamily, hospitality, office, mixed-use and other properties. Its $6.7 billion loan portfolio consists predominantly (98%) of senior loans; a similar percentage is floating rate.

The basic business of mortgage REITs goes like this: An mREIT buys mortgage loans and collects the interest. They make money by borrowing “short-term” (assuming short-term rates are lower) and lending “long-term” (when long-term rates are higher, as they usually are). It’s a great model when long-term rates are stable or, better yet, falling. A drop in long-term rates makes existing mortgages more valuable because newer loans yield less. But when long-term rates rise, as they have in recent years, mREITs are screwed.

Off the top of my head, I think the buying spree is due to the stock having hit an all-time low since the company went public in 2021, coupled with the mentality that “interest rates have to come down at some point.”

Management may be right, but otherwise management and its shareholders may continue to suffer.

Purely in terms of price, the stock has halved since 2021. The mREIT has even taken a dividend cut in its short history – a 32% reduction in 2023 to the current 25 cents per share. Even then, distributable earnings – a non-GAAP metric preferred by CMTG – were only 28 cents per share for all of last year, which was nowhere near enough to cover the distribution. Even worse? Claros delivered distributable earnings of 12 cents Loss in the first quarter of 2024.

Even if interest rates improve, this is a portfolio with increasing riskier loans and default rates above 10%. That’s not a strong position.

Brett Owens is Chief Investment Strategist for Contrary outlook. For more great income ideas, check out his latest special report: Your early retirement portfolio: Huge dividends – every month – forever.

Disclosure: none