In our last newsletter we talked about the very exciting and attractive opportunities to invest in quality bonds yielding between 7-11% per annum on a yield-to-maturity basis. In today’s newsletter, I’d like to discuss some of the high dividend yields that are available currently, which provide both a solid income and appreciation potential. The stock market is extremely bifurcated between the 7 or 8 largest stocks, which are now trading at higher valuations than they were prior to the bear market beginning in 2022, and the majority of the market which is mostly just treading water. This has opened up very attractive opportunities for investors willing to not follow the herd mentality into FANGMAN or whatever acronym you want to call the glamour tech stocks. Below are some stocks that offer an attractive combination of a low valuation and high dividend yields.
Stock Symbol Share Price Dividend Yield
1) AGO $54.02 2.07%
2) BXP $54.11 7.24%
3) C $48.30 4.22%
3) ALLY $28.00 4.29%
4) SPG $110.07 6.68%
5) KW $17.08 5.62%
6) VZ $35.47 7.36%
7) T $15.95 6.96%
8) BTI $32.52 8.25%
9) APA $33.41 2.99%
10) ENB $37.94 6.94%
11) BNPQY $30.18 6.95%
12) FRA $11.87 11.28%
13) ABBV $138.18 4.28%
14) MO $45.22 8.31%
These stocks are in a handful of different industries, and I believe that all have a very good chance at increasing their dividends into the future. The stocks might be out of favor in the short-term due to fears of a recession, higher interest rates, pressure from generic competitors, etc., but in most cases the risks are more than priced in. Continuing on our theme in treating your investment portfolio like a business, these cash flowing stocks, combined with conservative income-generating tools such as covered calls and cash-secured puts, can help you get the most out of your investments.
I believe a lot of the current market trends are unsustainable. AI will indeed be transformational, but that doesn’t mean you can simply just pay any price for stocks that could potentially be leaders in that category. There is always a new technology developing, just as there is always fear and greed. Taking advantage of these disconnects between fundamentals and price is what we do. We saw in 2022 what happens when overvalued stocks come to earth. Many stocks were down 50-80%, and only some of them have recovered. This year has been bizarre in that it started exceptionally well for value, and then the banking crisis in March shifted momentum to the more expensive glamour stocks. Lately value is starting to get some momentum once again and the spreads in valuation are some of the richest in history so there is a huge multi-year opportunity for lucrative mean reversion, which I believe we will benefit from.