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Top dividend stocks listed by Thornburg are trading at a discount.

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Investors searching for income opportunities in the current market can look to dividend stocks for potential bargains, according to Ben Kirby, co-head of investments at Thornburg Investment Management. Kirby has long been an advocate for dividend-paying equities, which he describes as a “timeless” strategy that not only provides income but also produces competitive results compared to global markets. Currently, dividend stocks are selling at a significant discount, making them an attractive option for investors. The MSCI ACWI High Dividend Yield Index typically trades at around a 30% relative P/E ratio discount to the MSCI ACWI Growth Index, but the discount has widened to about 50% in recent times.

When selecting dividend stocks, Kirby looks for companies with solid balance sheets, free cash flow, competitive advantages, sustainable profit margins, and good governance. He prefers companies with growing or stable dividends and is cautious about those with very high yields that may be forced to cut them in the future. Kirby has identified several dividend stocks that he owns in his funds and particularly likes right now. One of them is Home Depot, which has a dividend yield of 2.8%. Kirby sees growth opportunities for Home Depot, given its market share gains in the home improvement space and the positive impact of strong consumer spending, aging housing stock, demographic trends, and high home prices.

Another stock that Kirby favors is Citigroup, which is trading at a significant discount to JPMorgan Chase based on its price-to-book value. Citigroup recently completed a corporate reorganization, with CEO Jane Fraser emphasizing a focus on driving business performance and transformation. The company has been reducing its share count and has a competitive dividend yield, which Kirby believes could drive attractive returns. Citigroup shares have gained 20% year to date and yield 3.4%. Additionally, Kirby views AT&T as a compelling investment with a 6.5% dividend yield. Despite past missteps in acquisitions, Kirby believes the company’s new leadership understands the importance of focusing on core telecom operations to create shareholder value. AT&T has high free cash flow and the potential for double-digit returns even without significant growth.

In conclusion, dividend stocks present opportunities for income-seeking investors, especially in the current market environment where they are trading at a discount relative to growth stocks. Ben Kirby highlights the benefits of investing in dividend-paying equities, emphasizing the importance of selecting companies with strong fundamentals and sustainable dividends. Home Depot, Citigroup, and AT&T are among the stocks that Kirby finds attractive for their growth potential, valuation, and dividend yields. By considering these factors and investing in quality dividend stocks, investors can potentially generate consistent income and competitive returns in their portfolios.

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