Investors looking for stability amid the market volatility should consider a diversified portfolio of dividend stocks, according to ClearBridge Investments' Michael Clarfeld. The S & P 500 rose to a fresh record on Monday even as oil jumped on concerns over the Iran war. Iranian state media reported the country stopped negotiations with the U.S. and said it will completely shut the Strait of Hormuz because of Israeli attacks on Lebanon. Later Monday, President Donald Trump said he had a productive call with Israeli Prime Minister Benjamin Netanyahu regardign Lebanon. Given how high the market has gone, dividends can provide a more predictable return, said Clarfeld, portfolio manager of the firm's dividend strategy. They also tend to cushion the downside because they give investors a clear thing to hold onto, he added. "The case for dividends is as strong as it's ever been, given the volatility in the markets, given the uncertainty about what the future looks like, and also given the importance of dividend growth as an offset to inflation that's stickier and higher," he said. Inflation continues to run well above the Federal Reserve's target of 2%. The personal consumption expenditures price index , which is the Fed's benchmark inflation gauge, rose 3.8% in April and 3.3% when excluding food and energy prices, the Commerce Department reported last week. "If dividends can continue to grow at a healthy rate, which we think they can, it can keep investors ahead of inflation," Clarfeld said. Clarfeld is a portfolio manager on the ClearBridge Dividend Strategy Fund (SOPAX), which focuses on high-quality stocks that have an attractive or improving dividend profile. The fund, which is rated four stars by Morningstar, currently yields 1.99%. It has a 1% expense ratio. SOPAX YTD mountain ClearBridge Dividend Strategy Fund year to date Diversification is also important to help the portfolio weather the ups and downs of the stock market, Clarfeld believes. He thinks about it from a risk perspective, as well as an opportunity standpoint. "The risk perspective is obvious: We always think don't put all your eggs in one basket," he said. "The opportunity perspective is you never know where performance is going to come from, so you want to make sure you have exposure everywhere." Finding opportunity SOPAX's top holdings include The Williams Companies , Texas Instruments , Microsoft , Alphabet , Broadcom , Exxon Mobil and Apollo Global Management . However, Clarfeld recently added three names to the portfolio that he thinks are underappreciated right now. One of those is Blackstone , which was a former holding that Clarfeld sold once it reached full valuation. Shares are now down more than 23% year to date. "Alternative asset managers came under pressure in the first quarter on concerns around software exposure and also just broader private credit," he said. "We thought that was an opportunity." BX YTD mountain Blackstone year to date Plus, private credit is just one slice of the pie for Blackstone, which is a diversified alternative asset manager and one of the largest real estate investors, he added. The stock has an average analyst rating of overweight and 21.5% upside to the average price target, according to FactSet. In addition, it has an attractive dividend yield of 4.25%. Clarfeld also recently bought Otis Worldwide , which yields 2.4% and has lost nearly 21% so far this year. The elevator company, which hit a 52-week low on Monday, reported first-quarter earnings and operating income in late April that fell short of expectations. OTIS YTD mountain Otis Worldwide year to date However, it remains a high quality company, Clarfeld said. It is also part of the "HALO" trade — which stands for "Heavy Assets, Low Obsolescence," he noted. That means the company deals with real assets that will be insulated from AI disruption. AI is "not going to change how people use elevators," Clarfeld said. "Even if people [get laid off] … at white collar jobs, which hopefully doesn't happen too much, you still have to repair the elevator." Analysts covering Otis give it an average rating of overweight. The stock has 34.5% upside to the average price target, per FactSet. Lastly, Clarfeld recently added shares of insurance broker Marsh , which has shed 13% year to date. The stock has a 2.2% dividend yield. "It's a nicely growing business, it's highly profitable, [and] unlike the insurance business, they're not taking any actual risks themselves," Clarfeld said. MRSH YTD mountain Marsh year to date Insurance stocks have been hit over the last few months over concerns around softness in the insurance business, as well as fears about AI displacing insurance brokers. "Those two things combined to really whack the stock and got it to a level where that's trading at 16 times earnings for a very high quality business, and we think that that's attractive," he said. "We think the concerns about AI are overdone." Marsh has an average analyst rating of overweight and 25% upside to the average price target, per FactSet.
