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3 Dividend Stocks to Buy on Sale

Keith Speights, The Motley Fool

Stocks that pay out the highest dividend yields aren't always the best ones to buy. Sometimes, the yields are artificially high in advance of a big dividend cut. And sometimes the dividend is relatively safe, but the stock is overvalued.

But in other cases, stocks pay out mouth-watering dividends and are actually bargains. Three such stocks, in my view, are IBM (NYSE: IBM), Medical Properties Trust (NYSE: MPW), and Pfizer (NYSE: PFE). Here's why these are three dividend stocks that you can buy on sale.

Dividends tab on twig next to roll of $100 bills

Image source: Getty Images.

IBM

IBM's dividend currently yields 3.89%. While the stock is down somewhat in 2017, the nice yield isn't primarily due to a slumping share price. IBM has increased its dividend by more than 76% over the last five years and by 275% over the last 10 years.

The stock trades at a little over 11 times expected earnings. Why is a blue chip stock like IBM available at such a bargain price? The company has struggled in recent years with revenue and earnings declines. Some investors began to write off IBM as a technology dinosaur that couldn't keep up with more nimble competitors. That view is shortsighted, though, in my opinion. 

IBM's third-quarter results were better than expected. The company expects to return to growth in the fourth quarter of 2017, thanks in part to the launch of its new z14 mainframe computer. However, a more important reason for optimism about IBM is the company's investment into new technologies. IBM is a leader in artificial intelligence, blockchain, cloud computing, and other key technologies. 

Last year, IBM was awarded 8,088 patents -- more than any other U.S. company. Here's the kicker: 2016 was the 24th year in a row for IBM to top all other companies in U.S. patents received. IBM could extend its streak in 2017, as well. I believe that innovation pays off over the long run, which is why I think IBM is a bargain dividend stock to buy now.  

Medical Properties Trust

Medical Properties Trust's dividend yields more than 7%. As a real estate investment trust (REIT), the company must distribute at least 90% of earnings to shareholders as dividends. Medical Properties Trust (MPT) actually returned more than that percentage in dividends over the last 12 months and has increased its dividend payout by 20% over the last five years.

Despite the tremendous dividend, MPT stock isn't expensive. Shares currently trade at just over 13 times expected earnings. That's low relative to most stocks and to several other REITs on the market.

Medical Properties Trust owns medical properties -- primarily hospitals, but with some other healthcare facilities in the mix also. Most of these properties are in the U.S., although the company owns properties in Europe, as well. MPT offers long-term leases to tenants, with terms typically 15 years or longer. This gives the company a steady revenue stream that it can use to pay dividends and reinvest into its business.

Only six customers generate 78% of MPT's revenue. That could be viewed as a big negative for the stock. However, I think that MPT should benefit from aging demographics in the U.S. and Europe that are driving higher demand for healthcare services provided by its customers.  

Pfizer

Pfizer has been a longtime favorite for income investors -- and for good reason. The drugmaker's dividend ranks among the strongest in the healthcare sector, with a current yield of 3.61%. Pfizer's dividend has increased by 33% over the last five years.

The big pharma company's stock is also one of the most attractively valued in healthcare. Pfizer shares currently trade at a little over 13 times expected earnings.

There are several things that I think investors can look forward to from Pfizer in the future. One is higher earnings growth, thanks to fast-growing blockbusters like cancer drug Ibrance and anticoagulant Eliquis. Another is moving past headwinds from loss of exclusivity for several drugs. I also expect Pfizer to fuel growth through more acquisitions. The company was active on the acquisitions front in 2016 but has been quiet this year.

Pfizer could also reward investors in another way. The company announced in October that it is evaluating whether to sell or spin off its consumer healthcare business. I think that either option should be great for shareholders. And even if Pfizer decides to keep the unit, like IBM and MPT, it's still a bargain stock with a great dividend that should generate solid total returns for investors over the long run.

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Keith Speights owns shares of Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.