Income-seeking investors can find some bargains in dividend stocks, said Ben Kirby, co-head of investing at Thornburg Investment Management. Kirby has been a long-time investor in dividend stocks, a strategy he calls “timeless.” Not only do you get revenue benefits, but the strategy often produces results that compete with global markets, he said. Investors now have an added benefit, he said, because dividend stocks are selling at deep discounts. “Overall, stocks are trading above their long-term averages [but] “From a valuation perspective, dividend-paying stocks are below long-term averages,” said Kirby, who also co-manages the Thornburg Investment Income Builder mutual fund and other funds. , this discount is “unprecedented.” He noted that the relative price-to-earnings ratio of the MSCI ACWI High Dividend Yield Index, which tracks global stock dividend yields, is typically about 30% lower than the MSCI ACWI Growth Index, which tracks global growth stocks. When looking for a suitable dividend stock, Kirby looks for companies that offer strong balance sheets and free cash flow, as well as competitive advantages and sustainable profit margins. companies, and they’re not shrinking, they’re still growing. Here are some of the stocks Kirby owns in his funds, as well as which ones he’s particularly fond of right now. Kirby said there are many reasons to own Home Depot, which has a 2.8% dividend yield, one of which is the opportunity for growth. The home improvement retailer has had 12 consecutive quarters of negative traffic growth, but that won’t continue, he said. “They continue to capture market share across the entire home improvement segment,” Kirby said. Home Depot will also benefit from still-strong consumer spending as well as longer-term drivers such as an aging housing stock and demographic trends as millennials look to move to the suburbs, he added. High home prices are also a good thing for Home Depot, he said. “That means people are more confident in their home and more willing to invest in improving it,” Kirby said. Then there’s the valuation of stocks. The company’s trailing 12-month price-to-earnings ratio is 22.1, compared with the S&P 500’s price-to-earnings ratio of 25.1. Historically, Home Depot shares have traded at a 10% to 20% premium to the market, Kirby said. “Pricing has been discounted at a time when traffic may start to rise again,” Kirby noted. Home Depot is down 6% year to date. Another name Kirby likes is Citigroup, which trades at a steep discount to JPMorgan Chase’s price-to-earnings ratio. It’s also a complex turnaround story that could have positive outcomes in the future, he said. The bank announced a corporate restructuring in September. Chief Executive Jane Fraser told CNBC earlier this month that Citi completed its restructuring in March. “We are now a simpler bank and we are focused on two priorities, driving our business performance and our transformation,” Fraser said. The company has also been reducing its share count at about 5% per year since 2017. If the cuts continue, combined with the stock’s dividend yield, “that alone will result in a pretty competitive return,” Kirby said. Citigroup shares have risen 20% so far this year, with a yield of 3.4%. Finally, Kirby thinks AT&T, with its 6.5% dividend yield, is an “attractive investment.” He said he previously owned the stock but sold it after the company destroyed shareholder value with a bad acquisition. AT&T acquired DirectTV in 2015 and spun it off as a private company in 2021. [and] … Several members of the new board understand that the way to create shareholder value here is to stick to what they’re doing – just intercept and process and run their core telecom business,” he said. “We don’t need to get into content. We don’t need to be a movie studio. We just need to do mobile phones and then broadband. Use the other half to pay down the debt, and once the debt gets down to an appropriate level, they’ll start buying back stock, “He said. “So this company doesn’t even need to grow to generate double-digit returns. But I think they’ll probably grow 2% or 3%.
