In a market where finding reliable passive income sources can be difficult, two fund managers shared their insights into dividend stocks that can offer attractive yields and growth potential. Matt Burdette, portfolio manager at Thornburg Investment Management, looks for companies with the ability and willingness to pay dividends, with an emphasis on cash generation and flexible business models. Broadcom One such stock highlighted by Burdett is Broadcom, a semiconductor and software company. Although its current dividend yield of 1.6% may not sound attractive, Burdett noted that the company's earnings have grown significantly — by double digits annually over the past five years — since Thornburgh first invested. In addition, Broadcom's diversification into software through the acquisition of CA Technologies in 2018, and more recently VMware in 2023, could help reduce cyclicality to its earnings and cash flows, according to Burdette. The company is also well-positioned to capitalize on the generative AI trend, according to the fund manager, as it designs application-specific integrated circuit (ASIC) chips used by major technology companies. Wall Street analysts see a consensus price target of $1,563 for Broadcom, which implies an upside of 17% from its current share price of $1,336.10. AVGO Line 1Y Burdett, which manages $12.3 billion in assets following an income-building strategy, noted that the dividend culture is often stronger outside the US, skewing his strategy toward ex-U.S. stocks. Orange Burdett has highlighted Orange SA as an “underappreciated” French telecoms company with a current dividend yield of 6.8%. The stock is also traded in the U.S. While its 2.9% earnings growth may not be astonishing, Burdette noted that Orange has just gone through a major capital spending spree on fiber spending in France, and the company is now generating more cash Free operational flow. Improved free cash flow typically helps stabilize earnings and grow those companies that pay. Orange 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 increase shareholder pay or keep it stable over the past six years despite the COVID-19 pandemic, according to FactSet data. “It's an underappreciated cash generation story because no one cares about telcos,” Burdette told CNBC Pro. In addition, the recent merger of its Spanish business with MASMOVIL could also provide a cash infusion that Burdett believes should be used for share buybacks. The joint venture is expected to achieve more than 490 million euros ($533 million) annually in cost savings over four years, the companies said earlier this year. ORA-FR 1Y Line While the stock price has remained relatively unchanged this year, Wall Street expects it to rise 25% to €13.25. 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-offs 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 separate entity to improve margins and growth. Leonard cited W. K. Kellogg Co. as an example. WK Kellogg is the cereal company spun off from Kellogg, now known as Kellanova. With a dividend yield of 3.1% and a valuation well below that of its main rival General Mills, Leonard sees potential for WK Kellogg to improve operating margins and benefit from multiple earnings growth and expansion. KLG 1Y Line The stock is already up 58.6% year to date to $20.84. However, analysts have a consensus price target of $14, which implies a 33% downside to the current share price. This suggests that the market may have already priced in much of the expected improvements.
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Here are 3 dividend stocks that can provide passive income, fund managers say
