Looking ahead to 2024, dividend shares don’t seem to be popular with analysts. The general view from Goldman Sachs and JP Morgan seems to be that tech stocks – especially AI stocks – will do well.
I’m not disputing that, but I think there are also opportunities for investors looking to earn passive income. And there are a couple that stand out to me at the moment.
Lloyds Banking Group
Of Goldman’s five largest investments, only one could be reasonably thought of as a dividend stock. That stock, interestingly, is JP Morgan Chase.
I think this is a fair enough choice and I wouldn’t argue with anyone who said the US bank is the best financial institution in the world. But I prefer Lloyds Banking Group (LSE:LLOY) as a stock for 2024.
The main reason for preferring Lloyds is valuation. It achieves a lower return on equity than its US counterpart (15% vs 17%) but I think the relative discount in the stock more than offsets this.
Lloyds shares trade at a 33% discount to the company’s book value, compared to a 64% premium for JP Morgan. In my view, that difference is enough to prefer the UK bank as a stock to buy.
Investors should note that the bank is closely tied to the UK economy, which has faltered lately. But if a mild recession causes the Bank of England to cut interest rates, things could work out very nicely.
Kraft Heinz
In general, the consumer defensive sector has struggled in 2023. But I think that means there are bargains to be found in this sector for investors looking for passive income in 2024.
Kraft Heinz (NASDAQ:KHC) is one of the best examples of this. The stock trade at a price-to-earnings (P/E) ratio of around 15 and I think it looks like a stable business.
Switching costs in this sector are basically non-existent, so there’s a permanent risk of consumers trading down to save money. That’s something investors should keep in mind when it comes to this company.
Kraft Heinz, though, has learned from its previous mistakes. It has been investing heavily in its brands as well as coming up with new products to maintain its market share.
I think the company’s size also gives it a significant advantage. When it comes to marketing spend and distribution, the business has a scale that most of its rivals lack.
Kraft Heinz hasn’t increased its dividend for a number of years, making it look steady, rather than spectacular. But with an improving balance sheet, I wouldn’t be surprised to see growth in the future.
Passive income in 2024
Analysts at the big banks think the dominant theme for investors in 2024 will be artificial intelligence. They might be right, but investors looking for passive income should probably look elsewhere.
Companies focused on AI at the moment are largely using their cash to pursue growth opportunities. In other words, their priority isn’t returning cash to shareholders.
There’s absolutely nothing wrong with that. But as money flows into tech stocks focused on growth, I think there are opportunities opening up elsewhere.
