In a market where finding reliable passive income streams can be challenging, two fund managers have shared their insights on dividend stocks that could offer attractive yields and growth potential. Matt Burdett, portfolio manager at Thornburg Investment Management , looks for companies with the ability and willingness to pay dividends, focusing on cash generation and resilient business models. Broadcom One such stock Burdett highlighted is Broadcom , a semiconductor and software company. Although its current dividend yield of 1.6% may not seem attractive, Burdett pointed out that the company’s dividend has grown significantly â by double digits annually over the past five years â since Thornburg first invested. In addition, Broadcom’s diversification into software with the acquisition of CA Technologies in 2018 and, more recently, VMware in 2023 could help reduce the cyclicality of its earnings and cash flow, according to Burdett. The company is also well positioned to benefit from the generative artificial intelligence trend, according to the fund manager, as it designs application-specific integrated circuit (ASIC) chips used by major tech companies. Wall Street analysts see a consensus price target of $1,563 for Broadcom, implying a 17% upside from its current share price of $1,336.10. AVGO 1Y line Burdett, who directs $12.3 billion in assets tracking the Income Builder Strategy, noted that the dividend culture is often stronger outside the United States, leading his strategy to skew toward ex-U.S. stocks. Orange Burdett highlighted Orange SA as an “underappreciated” French telecommunications company with a current dividend yield of 6.8%. The stock is also traded in the U.S. While its dividend growth of 2.9% may not be spectacular, Burdett noted that Orange has just gone through a large capital expenditure wave on fiber spend in France, and the company is now generating much more operating free cash flow. Improved free cash flow typically helps dividend stability and growth for those companies that pay out. Orange has reported a 7.2% year-on-year increase in operating free cash flow in its latest full-year results. The company has also managed to either grow its shareholder pay out or keep it stable over the past six years despite the Covid-19 pandemic, according to FactSet data. “It’s a cash generation story that’s underappreciated because no one cares about telcos,” Burdett told CNBC Pro. In addition, a recent merger of its Spanish business with MASMOVIL could also provide a cash infusion that Burdett believes should be used for share buybacks. The two companies said earlier this year that the joint venture is expected to generate more than 490 million euros ($533 million) a year in cost savings in four years. ORA-FR 1Y line While the stock price has remained relatively unchanged this year, Wall Street expects it to rise by 25% to 13.25 euros. WK Kellogg Brian Leonard, portfolio manager at Keeley Teton, told CNBC Pro that he looks for high-quality companies that pay a dividend and trade at a discount to their “intrinsic value”. Leonard also highlighted spin-off situations as an investment opportunity. Such a scenario occurs when a company separates a lower-growth business from its higher-growth operations, creating an opportunity for the spun-off entity to improve margins and grow. Leonard citied WK Kellogg Co as an example. WK Kellogg is the spun-off cereal business of Kellogg Company, now known as Kellanova . With a 3.1% dividend yield and a significantly lower valuation than its main competitor General Mills , Leonard sees potential for WK Kellogg to improve its operating margins and benefit from earnings growth and multiple expansions. KLG 1Y line The stock has already gained 58.6% year-to-date to $20.84. However, analysts have a consensus price target of $14, implying a 33% downside from its current share price. This suggests the market may have already priced in much of the anticipated improvements.
Source Agencies
