Finding stocks that offer up a high yield and are trading at a bargain price isn't easy, but there are a few of them floating around. Knowing that, we asked a team of investors to each highlight a dividend stock with a big yield that is currently trading at a rock-bottom price. Here's why they called out AbbVie (NYSE: ABBV), Brookfield Infrastructure Partners (NYSE: BIP), and Retail Opportunity Investment Corp (NASDAQ: ROIC).
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Income, value, and growth -- this big pharma has it all
Keith Speights (AbbVie): Impeccable. That's probably the best way to describe AbbVie's credentials as a dividend stock. The big pharma company was part of Dividend Aristocrat Abbott Labs (NYSE: ABT) until it was spun off as a separate entity in 2013. Since then, AbbVie has kept its parent's streak of annual dividend increases going, boosting the dividend payout by a whopping 140% over the last five years.
AbbVie's dividend currently yields more than 3.7%. And there's no reason to think more dividend hikes won't be on the way. The company uses only 42% of its free cash flow to fund the dividend program, giving AbbVie ample flexibility to increase its dividends.
Investors don't have to pay through the nose to enjoy that nice dividend yield. AbbVie stock trades at only 11 times expected earnings. But the drugmaker's growth prospects make its valuation look even more attractive. AbbVie could realistically achieve average annual earnings growth of 17% over the next few years.
The company's top-selling drug, Humira, faces biosimilar competition in Europe beginning later this year. However, AbbVie claims a couple of other fast-growing products -- cancer drug Imbruvica and hepatitis C drug Mavyret. More importantly, the company's pipeline could deliver several more big winners, including autoimmune disease drugs risankizumab and upadacitinib. Whether you're looking for income, value, or growth, AbbVie has it all.
Has yield, will travel
Maxx Chatsko (Brookfield Infrastructure Partners): The relationship between Mr. Market and Brookfield Infrastructure Partners has frayed in 2018, with the stock sliding 16% year to date. But the company has plenty to offer long-term investors willing to bet on a rebound, including a yield now sitting at 5%.
The near-continuous slide in market cap and unit price in 2018 is very uncharacteristic. Consider that the stock has delivered total returns (share gains plus reinvested dividends) of 405% in the last decade, which easily beats the total return of 152% from the S&P 500 in that span. In fact, that makes it one of the best investments of the last 10 years.
What's going on with Brookfield Infrastructure Partners stock? Aside from Wall Street jitters over near-term growth prospects, there's an absence of great explanations for the stock's slide. Management recently announced it was proceeding more carefully with capital deployments after it observed changes in the global economy. Since the best opportunities arise in more volatile periods, that's a good thing for the long-term growth of the business. But Wall Street is worried growth will slow in the coming quarters.
Nonetheless, management still thinks the business will deliver distribution growth of 5% to 8% in the coming years. A slew of projects including toll roads in India, utilities in South America, fiber-optic cables in France, and energy infrastructure in the United States provides confidence that healthy growth is still more than possible for Brookfield Infrastructure Partners. Simply put, this is a great opportunity to buy a high-yield stock at a great price, then reap the rewards over the long haul.
A grocery-anchored REIT
Brian Feroldi (Retail Opportunity Investment Corp): Between rising interest rate and the recent troubles of the retail industry, it's not hard to figure out why Retail Opportunity Investments Corp (ROIC) has underperformed the S&P; 500 over the past year. The company's business model is to buy grocery-anchored shopping centers in high-traffic areas and then lease out space to high-quality tenants. The business is structured as a real-estate investment trust, so the vast majority of profits are passed along to shareholders as a dividend (which currently yields 4.2%). Given the recent tidal wave of retail bankruptcies, it's understandable why Wall Street isn't feeling great about this business right now.
I understand that skepticism, but a look under the hood suggests that ROIC is actually in great shape. The company's lease rate has stood above 97% for 15 quarters in a row, which suggests there is plenty of demand from retailers to rent the company's properties. That makes sense because ROIC only acquires shopping centers in densely populated areas that have a major grocery store on site. This laser-like focus on quality helps keeps traffic high even when times are tough. That's an attractive prospect for many retailers and helps to explain why ROIC has had no problem pushing through rent increases even as the overall market remains weak.
For 2018, management has decided to take its foot off the gas and see how shopping center prices react to the changing retail landscape. Long-term investors should applaud that move since buying new properties would require issuing shares at a depressed price.
Looking ahead, I think it's likely that Wall Street will eventually warm up to this business once it realizes that the company's high-quality portfolio will allow it to continue pushing through steady rent increases. If true, then income-loving investors might want to snatch up a few shares of this stock on the cheap while they still can.
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Brian Feroldi has no position in any of the stocks mentioned. Keith Speights owns shares of AbbVie. Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Retail Opportunity Investments. The Motley Fool has a disclosure policy.