Billionaire Stan Druckenmiller Sells Nvidia, Apple and Microsoft and Buys These High-Yield Dividend Stocks Instead

Stan Druckenmiller saw the potential for the next wave of artificial intelligence quite early. This led him to occupy an important position in Nvidia in the fourth quarter of 2022. He added Microsoft in the first quarter of 2023 after increasing its stake in generative AI leader OpenAI. At the beginning of this year, he began to take profits from his investment in Nvidia and put something into it Apple.

But Druckenmiller quickly changed his tune on the world’s three largest companies. He sold shares of Nvidia, Apple and Microsoft during the second quarter, according to his latest 13F filing with the SEC. Instead, he focused on high-yielding dividend stocks, which could all see their share prices benefit from the Federal Reserve’s rate cuts.

The Fed began this easing cycle on September 18 with a 0.5 percentage point cut in the federal funds rate. The market expects two cuts of 0.25 percentage points in the next three months and even further cuts in 2025. Here are the three stocks Druckenmiller is buying to take advantage.

1. Philip Morris

In the second quarter, Druckenmiller bought 889,355 shares of stock Philip Morris (P.M 0.88%)in addition to the purchase options giving it the right to purchase an additional 963,000. Combined, the entire position was worth $187.7 million at the end of June.

Philip Morris is the world leader in a declining industry. As the health risks of cigarettes are taught to new generations, fewer young consumers are buying cigarettes. But Philip Morris is committed to replacing cigarettes with smokeless alternatives.

The tobacco company’s portfolio of smokeless products includes the popular Iqos branded sticks and Zyn nicotine pouches. It now estimates 36.5 million active customers of these smoke-free products. The Iqos brand is slated to launch in the US in the fourth quarter, which could provide another boost to its sales.

Even as Philip Morris focuses on the future of nicotine products, it has been able to maintain cigarette sales through consistent pricing power. Its market dominance, including brands such as Marlboro and Parliament, gives it strong pricing power, allowing it to offset declining unit sales.

The stock currently trades at about 17.5 times forward earnings estimates and yields about 4.5%. That’s a fair price to pay for a company that should be able to steadily grow profits and dividends as it navigates the current transition in its industry.

2. Kinder Morgan

Druckenmiller added 2,872,665 shares of Kinder Morgan (KMI 0.93%) in its portfolio in the second quarter. This follows an initial purchase of 3,880,500 shares in the first quarter. The billionaire’s total position at the end of the second quarter was $134.2 million.

Kinder Morgan is responsible for transporting about 40% of the natural gas consumed in the US. Its current growth engine, however, is liquefied natural gas (LNG) export facilities.

Management expects demand for natural gas to grow substantially between now and 2030. Exports of liquefied natural gas could double during this period. Additionally, Chairman Richard Kinder discussed AI’s potential to drive energy demand during the company’s second quarter earnings call.

As companies build more AI data centers, they will need to power them, and renewable energy is not at the point where it can keep up with demand. Training and running advanced AI models takes a lot of energy, even as chipmakers work to make their designs more energy efficient.

The stock currently trades at an enterprise value of 12.2 times earnings before interest, taxes, depreciation and amortization (EBITDA) and yields around 5.3%. That valuation is near the top of comparable companies, but may be worth the price for a company in Kinder’s dominant position. Steady growth in free cash flow should support its dividend for years to come.

3. Mid-America Apartment Communities

Druckenmiller’s last big buy of the second quarter was Mid-America Apartment Communities (MAA -1.25%). He established a position of 644,190 shares of the real estate investment trust (REIT), worth $91.9 million at the end of June.

MAA focused on multifamily residential properties. It currently owns 103,600 apartment units in the Sunbelt region. MAA focuses on markets with strong job growth, growing population and high rates of household formation. The result is strong demand for housing, which allows MAA to increase rental rates faster than the market.

As a REIT, it can benefit from falling interest rates. This means a lower cost of debt while making equity returns look even more attractive compared to bond investments. But MAA isn’t waiting for rates to fall to invest in the future. It has $1 billion in development.

The stock trades for about 17.4 times funds from operations (FFO) per share. This is roughly in line with other residential real estate investment trusts. But with its investments going forward, it could see strong rent and FFO growth. And with shares currently trading around 3.6%, it could be worth a closer look for investors interested in diversifying their portfolio with a REIT.