When it comes to investing, there are many strategies out there, but one timeless strategy that stands out is investing in dividend-paying stocks. Ben Kirby, co-head of investments at Thornburg Investment Management, is a firm believer in this approach. Not only do dividend stocks provide a steady stream of income, but they also have the potential to produce competitive results compared to global markets.
What makes dividend stocks even more attractive right now is that they are currently selling at a significant discount. According to Kirby, dividend-paying stocks are trading below their long-term averages from a valuation standpoint, unlike other types of stocks that are trading above their averages. In fact, the MSCI ACWI High Dividend Yield Index is currently trading at a 50% relative P/E ratio discount compared to the MSCI ACWI Growth Index.
So, what should investors look for when choosing dividend stocks to add to their portfolio? Kirby recommends focusing on companies with solid balance sheets, free cash flow, competitive advantages, sustainable profit margins, and good governance from the company’s board. It’s also important to look for companies with growing or stable dividends, rather than those with very high yields that may be unsustainable.
One stock that Kirby particularly likes right now is Home Depot, which offers a dividend yield of 2.8%. This home improvement retailer has a lot of growth potential, especially as consumer spending remains strong and demographic trends drive demand for home improvement products.
Another stock on Kirby’s radar is Citigroup, which is trading at a significant discount to its peer, JPMorgan Chase, on a price-to-book value basis. With a recent corporate reorganization and ongoing efforts to reduce its share count, Citigroup could potentially see upside in the near future.
Lastly, Kirby sees AT&T as a compelling investment opportunity, thanks to its high dividend yield of 6.5% and strong free cash flow. The company’s focus on its core telecom business and reducing debt could lead to double-digit returns for investors.
Overall, dividend stocks offer a unique combination of income and growth potential, making them an attractive option for investors looking to build a well-rounded portfolio. Keep an eye on these stocks and others like them for potential investment opportunities in today’s market. Stay tuned to Extreme Investor Network for more insights and tips on investing wisely.