David Cassese of BlackRock (BLK) Advisors LLC said he likes stocks with dividend-growth potential and industrial companies that will benefit from a manufacturing resurgence in the U.S.
While some dividend-payers in groups such as telecommunications and utilities have become overvalued, there are still many companies with growth prospects that will be able to increase their payouts, according to Cassese, a fund manager at BlackRock. Railroads and transportation companies will benefit from a “manufacturing renaissance” in the U.S. over the next five to 10 years, he also said.
“Companies are more open than ever to bring manufacturing back to the U.S,” Cassese said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “It’s not just the low-cost natural gas that’s driving it. There’s been wage inflation in emerging markets. Companies have had years of experience now of outsourcing and have realized that there are frictional costs, there is loss of IP, there are language barriers.”
The Standard & Poor’s 500 Index has gained 16 percent in 2013. Telephone companies have the highest dividend yield among 10 S&P 500 groups at 4.2 percent, and trade for 22.3 times operating earnings in the last year, according to data compiled by Bloomberg. Utility stocks, with a payout rate of 3.8 percent, are valued at 17.3 times profit, the data show. The S&P 500 has an earnings multiple of 16.1 and has a dividend yield of 2 percent.
Industrial companies have surged 183 percent a a group since the bull market in U.S. equities began in March 2009. That compares with the S&P 500’s 144 percent rally and is the third biggest gain out of 10 S&P 500 groups. The group trades at 16 times profit in the previous 12 months, Bloomberg data show.
Cassese said he’s been underweight financial companies because of regulatory concerns like the Dodd-Frank Act and opaque business models at large banks. At the same time, he’s been adding regional banks such as Cincinnati-based Fifth Third Bancorp and Atlanta-based SunTrust Banks Inc. (STI), as the “path to dividend growth” for these financial companies becomes clearer, he said.
To contact the editor responsible for this story: Lynn Thomasson at email@example.com