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Per-capita coffee consumption is growing globally, while Starbucks also has a very successful loyalty program.CHRIS HELGREN/Reuters

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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

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. SBUX-Q

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

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

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

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

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 acquisitions.

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.

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