Two High Yields The Insiders Are Buying 

Major Shareholders Double-Down On High-Yielding Stocks 

The market has been in a major correction driven by mounting fear of recession, margin compression, and earnings growth slowdown but, in many cases, the baby has been thrown out with the bathwater. This has resulted in some great buys, particularly in high-quality dividend names, and we are taking notice. More importantly, major insiders in Xerox (NYSE: XRX) and Best Buy (NASDAQ: BBY) are doubling down on their holdings which we take as a great sign. These stocks may not rebound strongly simply because broad market conditions are so iffy but we can say these high-yielding dividend payers show no sign of distribution weakness and offer a deep value for income investors. 

Carl Icahn Put A Bottom In Xerox 

The market for Xerox stocks took a turn for the worse following the Q1 earnings release but major shareholder Carl Icahn put a floor in the action. Mr. Icahn bought a little more than 2 million shares to bring his total holdings up to 34.245 million which is equal to about 22% of the company. His purchases have total insider and institutional ownership up to 88% and growing and we’re not surprised he made them. 

The stock is trading at only 14X its earnings estimate while paying a dividend worth 6.25% and the outlook for earnings is still robust. The Q1 report put the fear of inflation into the market but did little to dampen the long-term forecast. The analysts are expecting tepid YOY revenue growth and margin contraction this year but growth is expected to continue into fiscal 2023 and come with significant margin expansion. 

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The stock is paying a very high 6.27% dividend yield which is attractive but comes with a caveat. The payout ratio this year is running near 85% and dividend coverage could be worse if pricing actions are not enough to offset the rise of inflation. Looking out to next year, however, the margin is expected to nearly double and produce EPS near $2.15 which puts the payout ratio at a much more reasonable 46%. Turning to the chart, shares of Xerox are trading near the lowest levels since the pandemic and over the last decade and appear to be putting in a bottom. Assuming the $15 is confirmed as a bottom, we see this stock moving sideways within its range with a chance of advancing 30% or more before hitting major resistance. 

Best Buy Is A Good Buy For Founder Richard Schulze 

Best Buy insiders have been selling stock over the past year but there are two things investors should know. The first is that selling has been light, consistent with share-based compensation, and in tandem with share prices hitting the highest level in history. We’re not too worried about that. On the flip side, one notable shareholder, the company’s founder, and Chairman Emeritus Richard Schulze has been buying. Mr. Shulze bought nearly $20 million worth of the shares in May which is almost double the amount of sales. We think this is far more significant and it is backed up by institutional activity as well. The institutions have been buying Best Buy over the past year and have total ownership up to 81%. 

In regard to the dividend, the stock is paying about 5.0% in yield while trading at a deep discount of 8X earnings. We also view the payment as safe based on the low 33% payout ratio, the 8-year history of distribution increases, and the outlook for earnings. The outlook for revenue growth isn’t robust but the outlook is for growth and margin expansion as well. In that light, the distribution CAGR may fall from the current 20% pace the company has been increasing the dividend but we would not expect dividend increases to end. 

Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
Xerox (XRX)	$2.79	+3.0%	3.58%	-0.26	Hold	$3.50