{"id":19211,"date":"2023-06-07T01:20:46","date_gmt":"2023-06-07T05:20:46","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/as-tech-companies-take-over-the-market-again-dont-forget-these-bargain-dividend-stocks\/"},"modified":"2023-06-07T01:20:47","modified_gmt":"2023-06-07T05:20:47","slug":"as-tech-companies-take-over-the-market-again-dont-forget-these-bargain-dividend-stocks","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=19211","title":{"rendered":"As tech companies take over the market again, don\u2019t forget these bargain dividend stocks"},"content":{"rendered":"
\n

If you are an index-fund investor, you\u2019re probably feeling pretty good right now \u2014 the S&P 500 has returned 12.1% so far this year, with dividends reinvested, following its 18% decline in 2022.<\/p>\n

But this is a tech-led rally reversing last year\u2019s pain. The S&P 500
\n SPX,
\n +0.24%<\/bg-quote>
\n is heavily concentrated, which is wonderful for index-fund investors when the biggest names rally, just as it was brutal when the group tumbled last year.<\/p>\n

\n

This is a perfect time to be reminded that there are other approaches to the stock market. According to Daniel Genter, president of Genter Capital Management, which manages about $6 billion for institutional and private clients in Los Angeles, \u201cwhat is attractive now is not to jump on that bandwagon, but to look at undervalued companies with high dividends.\u201d<\/p>\n

In an interview, he named AT&T Inc.
\n T,
\n +1.82%<\/bg-quote>
\n as an example, pointing out that the stock\u2019s forward price-to-earnings ratio is very low and that its dividend yield of more than 7% is well supported by expected cash flow. Read more about this below, where we screen the S&P 500 for stocks meeting similar criteria.<\/p>\n

Heavyweights<\/h2>\n

If we look at the $405 billion SPFR S&P 500 ETF Trust
\n SPY,
\n +0.22%<\/bg-quote>,<\/span>
\n which tracks the benchmark index, the weighting by market capitalization is so concentrated that five companies make up more than 24% of the portfolio.<\/p>\n\n\n\n\n\n\n\n\n\n
\n Company<\/strong><\/p>\n<\/td>\n\n Ticker<\/strong><\/p>\n<\/td>\n\n % of SPY portfolio<\/strong><\/p>\n<\/td>\n\n 2023 total return through June 5<\/strong><\/p>\n<\/td>\n\n 2022 total return<\/strong><\/p>\n<\/td>\n<\/tr>\n
\n Apple Inc.<\/p>\n<\/td>\n\n AAPL,
\n -0.21%<\/bg-quote>\n <\/td>\n		\n 7.45%<\/p>\n<\/td>\n\n 39%<\/p>\n<\/td>\n\n -26%<\/p>\n<\/td>\n<\/tr>\n
\n Microsoft Corp.<\/p>\n<\/td>\n\n MSFT,
\n -0.67%<\/bg-quote>\n <\/td>\n		\n 6.98%<\/p>\n<\/td>\n\n 41%<\/p>\n<\/td>\n\n -28%<\/p>\n<\/td>\n<\/tr>\n
\n Amazon.com Inc.<\/p>\n<\/td>\n\n AMZN,
\n +1.05%<\/bg-quote>\n <\/td>\n		\n 3.12%<\/p>\n<\/td>\n\n 49%<\/p>\n<\/td>\n\n -50%<\/p>\n<\/td>\n<\/tr>\n
\n Nvidia Corp.<\/p>\n<\/td>\n\n NVDA,
\n -1.32%<\/bg-quote>\n <\/td>\n		\n 2.69%<\/p>\n<\/td>\n\n 168%<\/p>\n<\/td>\n\n -50%<\/p>\n<\/td>\n<\/tr>\n
\n Alphabet Inc. Class A<\/p>\n<\/td>\n\n GOOGL,
\n +1.03%<\/bg-quote>\n <\/td>\n		\n 2.09%<\/p>\n<\/td>\n\n 43%<\/p>\n<\/td>\n\n -39%<\/p>\n<\/td>\n<\/tr>\n
\n Alphabet Inc. Class C<\/p>\n<\/td>\n\n GOOG,
\n +1.01%<\/bg-quote>\n <\/td>\n		\n 1.83%<\/p>\n<\/td>\n\n 43%<\/p>\n<\/td>\n\n -39%<\/p>\n<\/td>\n<\/tr>\n
\n Sources: State Street Corp., FactSet<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

The return numbers, up and down, have been astounding. <\/p>\n

In a May 31 note to clients, Ed Clissold and Thanh Nguyen of Ned Davis Research wrote that the \u201coverarching theme for the stock market in 2023 is the mean reversion in mega-cap stocks that underperformed in 2022.\u201d They added that the percentage of stocks in the S&P 500 outperforming the index was at a record low and that following similar periods of \u201cnarrow leadership,\u201d performance of the benchmark has been relatively weak.<\/p>\n

This isn\u2019t to say that an investor won\u2019t benefit from continued exposure to the S&P 500, but it underscores that a cap-weighted index of 500 stocks isn\u2019t as diversified as you might have thought it would be.<\/p>\n

According to NDR, the percentage of the S&P 500 allocated to the largest five companies is the highest in their records going back to 1973. Through May, 24.5% of stocks in the S&P 500 had outperformed the index, according to NDR. \u201cIf it holds through the end of the year, it would be the lowest percent outperforming the index on record,\u201d Clissold and Nguyen wrote.<\/p>\n

And this underscores how exposure to stocks with high dividend yields that appear to be well supported by cash flow might make it easier for investors to ride out the type of market gyration we experienced last year \u2014 while being paid to wait.<\/p>\n

A dividend-stock screen<\/h2>\n

When discussing AT&T, Genter said the company\u2019s valuation was attractive in part because of the \u201cdark cloud\u201d over the company from its history of making expensive acquisitions, many of which were unwound through spinoffs in 2021 and 2022, including the spinoff of WarnerMedia to combine it with Discovery and form Warner Bros. Discovery Inc.
\n WBD,
\n +4.04%<\/bg-quote>.<\/span>\n <\/p>\n

Genter said the market wasn\u2019t giving AT&T\u2019s management credit for having learned its lesson and for positioning itself to be a stronger competitor against Verizon Communications Inc.
\n VZ,
\n +0.70%<\/bg-quote>.<\/span>
\n He also pointed to its low forward price-to-earnings ratio of 6.3. In comparison, the weighted forward P\/E for the S&P 500 is 18.6, based on consensus estimates among analysts polled by FactSet.<\/p>\n

\u201cWe are also seeing encouraging stickiness when it comes to pricing,\u201d he said. \u201cSome competitors have had to cut prices to maintain share, but they have been able to increase some prices.\u201d<\/p>\n

He said AT&T\u2019s high dividend yield was supported by \u201cvery high free cash flow.\u201d If you buy a stock in part because of a high dividend yield, the last thing you want to see is a dividend cut.<\/p>\n

A company\u2019s free cash flow (FCF) is its remaining cash flow after capital expenditures. This is money that can be used to raise dividends or to buy back shares, to expand organically or through acquisitions, or for other corporate purposes.<\/p>\n

If we divide expected FCF per share by the current share price, we have an estimated FCF yield, which can be compared with the current dividend yield to see if there is headroom. The more headroom, the better.<\/p>\n

For this screen, we began with the S&P 500 and narrowed the list as follows:<\/p>\n