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3 Dividend Stocks for In-the-Know Investors

By Todd Campbell, Travis Hoium, and Matthew Frankel, CFP® - Updated Feb 14, 2018 at 5:04PM

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Income investors could be missing out if they don't own these dividend-friendly stocks.

Keeping track of every dividend-paying stock is tough, and as a result, many intriguing income stocks have probably fallen off your watch list. If that's true of Brookfield Renewable Partners (BEP 0.11%), Store Capital (STOR 0.27%), and AbbVie Inc. (ABBV -0.47%), it might be time to look at them again. According to three top Motley Fool investors, each of these companies offers an opportunity for income growth that you shouldn't ignore.

Get a rising dividend from this global renewable-energy company

Travis Hoium (Brookfield Renewable Partners): When investors are looking at the energy industry today, there's a lot to consider. Volatile oil prices can make big oil stocks risky, changing utility markets have hurt formerly safe utility companies, and even natural gas isn't the profitable business it once was. But renewable-energy production around the world is growing, and companies that own renewable assets can generate consistent cash flows capable of funding dividend growth for years to come

Solar panels and wind turbines near a hydropower plant.

Image source: Getty Images.

One of the best dividends for in-the-know investors is Brookfield Renewable Partners, a yieldco that owns 16,000 megawatts of generating capacity around the world. Eighty percent of that capacity is hydropower, but the company is adding more wind and solar assets after acquiring a 31% interest in TerraForm Global and a 16% interest in TerraForm Power (TERP)

What's unique about Brookfield Renewable Partners is that it's not as tied to the idea of issuing stock to fund acquisitions as many yieldcos have been in the past. Instead, it expects to grow its dividend 5% to 9% annually and use any excess cash from the business to grow cash flow organically. If you look at the dividend over the past decade, you can see that the strategy has resulted in steady growth: 

BEP Chart

BEP data by YCharts.

Energy markets can be volatile, but a renewable-energy company like Brookfield Renewable Partners usually buys projects backed with long-term contracts to sell energy to utilities under a set rate. Yieldcos that can do that well will be big winners for investors, and that's why Brookfield Renewable Partners is a great dividend stock today.

Take advantage of rising interest rates and retail weakness

Matt Frankel (Store Capital): Bond yields have risen significantly over the past couple of weeks, and this has put tremendous pressure on income-focused investments such as real estate investment trusts, or REITs. Retail REITs have been especially beaten down, as high-profile retail bankruptcies and store closures have weighed on the industry.

Because of this combination of negative catalysts, now is a great time to pick up rock-solid retail-focused REITs like Store Capital at bargain prices.

Store Capital is a net-lease REIT. If you're not familiar, a net lease is a long-term lease structure that requires tenants to pay for taxes, insurance, and building maintenance. Because of these three items, they are also commonly referred to as "triple-net" leases. Essentially, net leases minimize tenant turnover and the variable costs of owning property.

Most of Store Capital's tenants are either retail- or service-focused. Just to give you an idea, top tenants include AMC Theatres, Camping World, and Applebee's.

Here's the main point. Despite the common perception of brick-and-mortar retail being on the wane, some types of retail are doing just fine. Service-based retail, for example, is virtually immune to e-commerce headwinds. Discount-oriented retail is also doing quite well. And retailers with an experiential component such as Camping World (people like to physically see an RV before buying) also don't have to worry about online competition much.

Thanks to the perceived retail weakness and the recent rise in bond yields, this stock, which Warren Buffett owns in Berkshire Hathaway's portfolio, now has an impressive 5.3% dividend yield. Store Capital could provide a great combination of income and growth in your portfolio for decades to come.

A pill bottle on its side with pills spilling out in the shape of a dollar sign.

Image source: Getty Images.

Time for this income-friendly stock to be back on your radar

Todd Campbell (AbbVie Inc.): Worry that its best-selling drug would soon face competition because of expiring patents may have caused you to remove AbbVie from your radar. However, the likelihood of competition to Humira has fallen considerably, and that suggests income investors ought to be looking at it again.

Humira is a widely used autoimmune disease drug. In 2017, its sales of more than $18 billion accounted for about 65% of AbbVie's revenue. Patents protecting Humira have already begun to expire, but a favorable patent decision last fall prompted competitor Amgen (AMGN 1.11%) to ink a nonexclusive deal with AbbVie that should keep Humira copycats at bay in the U.S. until 2023.

The extra time is great news because AbbVie has a lot of late-stage drugs that could reach the market before Humira's sales begin to drop. Over the next year, it plans FDA filings for Rova-T, a solid-tumor cancer drug; upadacitinib, a rheumatoid arthritis drug; and risankizumab, a psoriasis drug. All three of those drugs target multibillion-dollar indications and thus could be blockbusters.

AbbVie has FDA approvals pending for an endometriosis drug, Elagolix, and a chronic lymphocytic leukemia drug, Venclexta, that have billion-dollar potential, too.

The company has increased its dividend by 77% since it was spun out of Abbott Labs (ABT 0.71%) in 2013. Since management expects its effective tax rate to fall to 9% in 2018, from over 30% last year, and thinks new drugs could increase non-Humira sales from $9 billion to as much as $35 billion in 2025, there's reason to think even more dividend increases are coming. 

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Stocks Mentioned

AbbVie Inc. Stock Quote
AbbVie Inc.
$151.01 (-0.47%) $0.71
Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
$35.46 (0.11%) $0.04
STORE Capital Corporation Stock Quote
STORE Capital Corporation
$26.11 (0.27%) $0.07
Abbott Laboratories Stock Quote
Abbott Laboratories
$113.24 (0.71%) $0.80
Amgen Inc. Stock Quote
Amgen Inc.
$247.50 (1.11%) $2.73
TerraForm Power Stock Quote
TerraForm Power

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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