Investors looking for income can find bargains in dividend stocks, according to Ben Kirby, co-head of investment at Thornburg Investment Management. Kirby has been investing in dividend stocks for many years, which he calls a “timeless” strategy. In addition to benefiting from the income, he said, the strategy tends to produce results that can compete with global markets. Right now, investors are seeing the added benefit of dividend stocks being heavily discounted, he said. “Generally, stock prices are trading above their long-term averages. [but] “Dividend stocks are below their long-term averages from a valuation perspective,” said Kirby, who also co-manages the Thornburg Investment Income Builder Mutual Fund, among others. He added that the discount is “unprecedented” when compared to growth stocks. He noted that the MSCI ACWI High Dividend Yield Index, which tracks dividend-yielding global stocks, typically trades at a relative P/E discount of about 30% to the MSCI ACWI Growth Index, which tracks global growth stocks. Lately, he said, the discount has been closer to 50%. In his search for the right dividend stocks, Kirby looks for companies that offer solid balance sheets and free cash flows, as well as competitive advantages and sustainable profit margins. He also likes that the board has good governance. “You can find really world-class companies with a 5% dividend yield, and they’re not shrinking, they’re growing,” he said. Companies also need to have growing or at least stable dividends. He is skeptical of companies with very low dividend yields. They may be forced to lower their yields because of the high dividend yields. Here are some of the stocks Kirby owns in his fund that he particularly likes right now. Kirby said there are a lot of reasons to own Home Depot, which has a 2.8% dividend yield. First, there’s the opportunity for growth, he said. Home Depot has seen 12 quarters of negative foot traffic growth, but that won’t last, he said. “Home Depot continues to gain share across the Home Depot industry,” Kirby said. Home Depot will benefit from still-robust consumer spending, as well as long-term factors such as aging housing stock and demographic trends as millennials consider moving to the suburbs, he added. Rising home prices are also good for Home Depot, he said. “That means people feel more confident in their homes and are more willing to invest in home improvements,” Kirby said. Then there’s the stock’s valuation. The company trades at 22.1 times trailing-12-month earnings, higher than the S&P 500’s 25.1 times. Home Depot has historically traded at 10% to 20% above market value, according to Kirby. “The stock is discounted at a time when foot traffic is likely to start picking up again,” Kirby noted. Home Depot has fallen 6% so far this year. Another stock Kirby likes is Citigroup, which trades at a significant discount to JPMorgan Chase on a price-to-book basis. He also said it’s a complicated turnaround story with potential upside ahead. The bank announced a corporate restructuring in September. CEO Jane Fraser told CNBC earlier this month that Citi finished its restructuring in March. “We’re now a simpler bank, and we’re focused on two priorities: improving performance and transforming,” Fraser said. The bank has also reduced its share count at a rate of about 5% per year since 2017. If the reduction continues, combined with the stock’s dividend yield, “it will generate fairly competitive returns on its own,” Kirby said. Citi’s shares have risen 20% so far this year and have a dividend yield of 3.4%. Finally, Kirby considers AT&T, with a 6.5% dividend yield, an “attractive investment.” He previously held the stock but sold it after failed acquisitions eroded shareholder value, he said. AT&T acquired DirecTV in 2015 and spun it out as a private company in 2021. It acquired Time Warner in 2018 and sold it to Discovery in 2022. “The new CEO is [and] “…Some of the new board members understand that the way to create shareholder value here is to stick to what they do best, which is to just block and tackle and run their core communications business,” he said. “You don’t need to get into content. You don’t need to be a movie studio. You just need to do cellphone and broadband.” AT&T also has strong free cash flow, with a free cash yield of about 12% or 13%, he said. “AT&T only needs to pay out half of that as a dividend, and the other half will go to paying down debt and then start buying back shares once the debt is down to a reasonable level,” he said. “So this company doesn’t even need to grow to be double-digit profitable, but I think it’ll probably grow by 2% or 3%.” On top of that, AT&T’s stock is significantly cheaper than the industry, he said. AT&T is up about 2% year to date.
Dividend stocks that top Thornburgh’s list
Services
© 2026 Business Investopedia. All Rights Reserved.