Six bargain dividend stocks for investors to play a market rebound

  • Healthcare
  • Six bargain dividend stocks for investors to play a market rebound

Article by The Globe and Mail contributor Shirley Won | Published on July 26, 2022

Investors may want to do some bargain hunting given that many stocks have been beaten down amid concerns over rising interest rates, inflation, recession, and industry-specific headwinds.

Even shares of high-quality, dividend-paying companies can get overly punished because of negative sentiment in a sharp, market downturn. That, of course, provides opportunities to buy stocks on sale.

Although it’s difficult to predict a market’s direction – or whether the next move up is a rally within a bear market – the beauty of owning dividend payers is that investors get paid to wait for a rebound.

Globe Advisor asked three dividend-fund managers for their top picks.

Darren McKiernan, senior vice president, portfolio manager, and head of the global equity and income team, Mackenzie Investments

Fund: Mackenzie Global Dividend Fund

Pick: Broadcom Ltd.

AVGO‐Q ‐0.19% decrease

Forward annual dividend and yield: US$16.40 a share (3.2 per cent)

Broadcom is a highly profitable technology company but may fly under the radar of the average investor, Mr. McKiernan says.

The San Jose, Calif.-based company, which should generate more than US$33-billion in sales this year, will get about 73 per cent of profits from semiconductors and 27 per cent from infrastructure software.

“Ninety-nine per cent of all internet traffic has to cross at least one Broadcom chip –
that’s how pervasive it is,” he says.

A semiconductor slowdown is a risk, but its deal to acquire cloud-computing giant VMware Inc., which closes next year, makes Broadcom a more defensive name, he adds. Fifty per cent of profits will then come from higher-margin, software products, he says.

With more than 20,000 patents and undeniable growth, Broadcom shares trade at about 14 times forward earnings, he says.

Pick: Starbucks Corp.

Forward annual dividend and yield: US$1.96 a share (2.4 per cent)

Starbucks, the world’s largest coffeehouse chain, is a compelling investment because of its huge growth opportunity in China once it gets past COVID-19 lockdowns, Mr. McKiernan says.

The Seattle-based company’s coffee is a “premium product in China – it’s almost aspirational,” he says. China makes up 15 per cent of sales but is its most profitable region. Per-capita coffee consumption is growing globally, while Starbucks also has a very successful loyalty program, he adds.

Unionization at its U.S. stores is a risk but is “overblown” given that Starbucks is top of the charts for employee benefits among its peers, Mr. McKiernan says.

Its stock trades at about 24 times forward earnings versus a 10-year average of 34 times, he says, adding that he expects 10 per cent-plus earnings-per-share growth for three to five years starting in 2023.

Michael Simpson, portfolio manager, NCM Asset Management Ltd.

Fund: NCM Dividend Champions

Pick: Gildan Activewear Inc.

GIL‐T ‐4.80% decrease

Forward annual dividend and yield: 0.68 cents a share (2.4 per cent)

Shares of Gildan Activewear are attractive because they are trading cheaply amid recession worries, and yet it makes many clothing essentials, Mr. Simpson says.

The Montreal-based apparel maker produces garments such as undecorated T-shirts, hoodies, socks and underwear. Because its clients include giant retailers, there are concerns that they will demand price cuts, but “I’m not looking for a deep recession,” he says.

Gildan is also more resilient than some peers because it is a low-cost producer and has invested in technology at its Central American plants to improve garments, he adds. Demand for T-shirts to be custom printed will grow with the return of live concerts and sports events.

Gildan’s stock, he notes, trades at about nine times forward earnings versus 11 or 12 times in the past.

Pick: Canadian National Railway Co.

CNR‐T +0.07% increase

Forward annual dividend and yield: $2.93 a share (2 per cent)

Canadian National Railway (CN Rail) shares have sold off on recession worries but it’s a compelling play because it’s a profitable business that’s essential to the growth of the economy, Mr. Simpson says.

The Montreal-based railroad, which operates as a duopoly in Canada, has tracks connecting to the Pacific and Atlantic coasts and to the Gulf of Mexico. Rail veteran Tracy Robinson, who became chief executive officer this year, appears to be “doing well” to make the railroad more efficient, he says. CN Rail should also benefit from a more normal harvest season after last year’s weaker crop.

Although a recession is a risk, the railroad can still pass on higher fuel prices to customers, he notes. Its shares trade at about 18 times forward earnings, but that is reasonable given its strong moat, he says.

Robert Moffat, director of investments and portfolio manager, Middlefield Capital Corp.

Funds: Middlefield Healthcare Dividend Fund; Middlefield Healthcare Dividend

ETF MHCD-T; Middlefield Health and Wellness ETF HWF-T

Pick: Abbott Laboratories

ABT‐N +0.99% increase

Forward annual dividend and yield: US$1.88 a share (1.7 per cent)

Abbott should outperform its medical-technology industry peers given its diversification and the resiliency of its core medical-device and diagnostic businesses, Mr. Moffat says.

The Abbott Park, Ill.–based company is a leader in medical devices for diabetes with its Libre 3 continuous glucose monitors driving increased sales, while its structural-heart devices are on a strong growth trajectory, he adds. These “needs-based” devices make it a more defensive play.

Its shares also trade attractively at about 22 times forward earnings versus a five-year average of 24 times, he adds. A risk is that Abbott, which also has a nutrition and an established pharmaceutical business that sells generics in emerging markets, faces a headwind from a strong U.S. dollar as 65 per cent of sales come from foreign markets.

Pick: Abbvie Inc.

ABBV‐N +1.46% increase

Forward annual dividend and yield: US$5.64 a share (3.8 per cent)

Abbvie, an immunology therapy leader, is an attractively valued name in the more defensive biopharmaceutical space, Mr. Moffat says.

The North Chicago, Ill.–based drugmaker’s shares have been hurt by concerns of rising competition for its blockbuster arthritis treatment Humira after it comes off patent next year in the U.S. However, Abbvie has developed new immunology drugs – specifically Skyrizi and Rinvoq – that could grow to more than US$25-billion in annual sales by 2030, he says. It also has an aesthetics business, which owns the Botox wrinkle treatment, after acquiring Allergan PLC in 2019, and plenty of cash for strategic

Abbvie shares trade at around 11.5 times forward earnings versus 14 times for its peer group, he notes. Potential U.S. legislation to reduce and cap prices of top-selling drugs is a risk.

Have Questions?

Whether you have specific investment inquiries or general questions about Middlefield, our team would be glad to help.

Contact us


Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. You will usually pay brokerage fees to your dealer if you purchase or sell units/shares of investment funds on the Toronto Stock Exchange or other alternative Canadian trading system (an “Exchange”). If the units/shares are purchased or sold on an Exchange, investors may pay more than the current net asset value when buying and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units or shares of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents. Mutual funds and investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this disclosure are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may”, “will”, “should”, “could”, “expect”, “anticipate”, “intend”, “plan”, “believe”, or “estimate”, or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Middlefield Funds and the portfolio manager believe to be reasonable assumptions, neither Middlefield Funds nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

This material has been prepared for informational purposes only without regard to any particular user’s investment objectives or financial situation. This communication constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described herein is suitable or appropriate for you. Investment decisions should be made with guidance from a qualified professional. The opinions contained in this report are solely those of Middlefield Limited (“ML”) and are subject to change without notice. ML makes every effort to ensure that the information has been derived from sources believed to reliable, but we cannot represent that they are complete or accurate. However, ML assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. ML is under no obligation to update the information contained herein. This document is not to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument.

  • Healthcare
  • Six bargain dividend stocks for investors to play a market rebound
Subscribe to Our Insights!
Flyout Form
Subscribe for MCT Updates
Flyout Form UK