In a market where finding reliable passive income streams can be challenging, two fund managers share their insights into dividend stocks that can offer attractive yields and growth potential. Matt Burdett, portfolio manager at Thornburg Investment Management, looks for companies capable and willing to pay dividends, focusing on cash generation and resilient business models. Broadcom One stock Burdett highlighted was semiconductor and software company Broadcom. While the current dividend yield of 1.6% may not seem attractive, Burdett noted that the company’s dividend has grown significantly by double digits each of the past five years since Thornburg first invested. In addition, Broadcom’s software diversification with its acquisition of CA Technologies in 2018 and its recent acquisition of VMware in 2023 could help make its earnings and cash flow less cyclical, Burdett said. The fund manager said the company is also well-positioned to benefit from the generative artificial intelligence trend because it designs the application-specific integrated circuit (ASIC) chips used by major technology companies. Wall Street analysts expect Broadcom’s consensus price target to be $1,563, which would imply 17% upside from its current share price of $1,336.10. AVGO 1Y line Burdett, who has $12.3 billion in assets under management and tracks income generator strategies, noted that dividend culture tends to be stronger outside the U.S., leading his strategy to favor non-U.S. stocks. Orange Burdett highlighted Orange SA as an “undervalued” French telecom company with a current dividend yield of 6.8%. The stock also trades in the United States. Burdett noted that while the 2.9% dividend growth may not be impressive, Orange has just experienced a massive capex wave in French fiber spending and the company is now generating more operating free cash flow. Improving free cash flow generally contributes to dividend stability and growth for companies that pay a dividend. In its latest full-year results, Orange reported a 7.2% year-over-year increase in operating free cash flow. The company has managed to increase or hold steady shareholder payouts over the past six years despite the impact of the Covid-19 pandemic, according to FactSet. “This is a cash generation story that’s underappreciated because no one cares about telcos,” Burdett told CNBC Pro. Additionally, the recent merger of its Spanish operations with MASMOVIL could also provide a cash infusion, which Burdett believes The injection should be used for stock buybacks. The companies said earlier this year that the joint venture is expected to generate annual cost savings of more than 490 million euros ($533 million) over four years. ORA-FR 1Y Line Although the share price has remained relatively unchanged this year, Wall Street expects a 25% rise to 13.25 euros. WK Kellogg Brian Leonard, portfolio manager at Keeley Teton, told CNBC Pro that he looks for quality companies that pay dividends and trade below their “intrinsic value.” Leonard also highlighted the spin-off situation as an investment opportunity. This occurs when a company separates a low-growth business from its high-growth business, creating opportunities for the separate entity to improve margins and grow. Leonard points to WK Kellogg Co as an example. WK Kellogg is the cereal business that was spun off from the Kellogg Company and is now known as Kellanova. With a 3.1% dividend yield and a valuation that’s well below its main rival General Mills, Leonard sees the potential for WK Kellogg to improve operating margins and benefit from earnings growth and multiple expansions. KLG 1Y line The stock has risen 58.6% year to date to $20.84. However, the analyst consensus price target for the stock is $14, which would imply a 33% downside from the current share price. This suggests that the market may have already priced in most of the expected improvements.
