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3 High-Yield Stocks Still Worth Buying

By Jason Hall, Rich Duprey, and George Budwell - Feb 19, 2018 at 6:46PM

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Many dividend stocks are overpriced, but these investors have identified three you should consider buying now.

Dividend investors have faced a pretty challenging environment over the past few years, as historically low interest rates have seen a lot of money shift out of bonds and into dividend stocks, making yield even harder to find. For a lot of people, this leads down the path of investing in high-yield stocks, often at much higher risk than they realize, such as struggling companies that end up cutting their payouts. 

But that doesn't mean all high-yield stocks are high-risk and should be avoided. Three Motley Fool investors have identified Brookfield Infrastructure Partners L.P. (BIP 0.71%)DSW Inc. (DBI 7.91%), and AstraZeneca plc (ADR) (AZN 3.80%) as three high-yield stocks very much worth buying.

You may find higher yields out there than the 4% these three pay, but these companies offer investors a measure of safety and prospects for growth those higher-yield stocks may not have. Keep reading to learn how they might fit in your portfolio. 

A stopwatch with time to buy replacing some of the numbers.

It's not too late to buy these high-yield dividend stocks. Image source: Getty Images.

High-yield, dividend growth, and it's on sale

Jason Hall (Brookfield Infrastructure Partners): One of my favorite high-yield investments is master limited partnership Brookfield Infrastructure Partners, which trades about 8% below its recent high. Selling for a reasonable 13.5 times last year's funds from operations, and yielding over 4%, it's worth buying now. 

But the discount to its peak price is really only icing on the cake. What makes Brookfield Infrastructure worth owning is that its management team is should be able continue growing this world-class business -- and the dividend it pays -- for potentially decades to come. Infrastructure is a major global need, and Brookfield Infrastructure specializes in high-demand areas that will need substantial expansion in the years to come: water, energy distribution, transportation, and telecommunications. 

Last year, Brookfield Infrastructure's FFO per share grew 14%, enabling it to increase its distribution a very strong 8% in 2018. This is a continuation of its incredible track record of dividend growth:

BIP Dividend Chart

BIP Dividend data by YCharts.

And there's even more to like. Management says it plans to invest more in organic growth and less in acquisitions going forward. This is important for two reasons: First, competition to buy infrastructure assets has increased, meaning lower returns for new acquisitions. Second, growth via acquisition can be very challenging, while expansion of existing businesses can be lower risk and higher return if done effectively. 

With one of the best management teams in the business, Brookfield Infrastructure is a high-yield dividend growth investment that's definitely worth buying now and holding for the long term. 

Ready to kick it higher

Rich Duprey (DSW): You could get a serious workout following the stock gyrations of footwear retailer DSW. Shares are running downhill again, falling 8% over the past month, but the business is turning up, and investors should keep a keen eye on where it's heading.

DSW is moving in the right direction after several years of trying to find firm footing in the age of Amazon.com. Although its comparable-store sales were negative last quarter, the 0.4% decline was an improvement over the prior year's period, and the revenue picture will improve as it gets out from the shadow of its relationship with the bankrupt Gordman's department store chain.

A man helps a young boy try on a pair of shoes in a shoe store.

Image source: Getty Images.

Despite these downward pressures, the footwear retailer was about to improve margins for merchandise, and in its affiliated business group section, which wholesales footwear to other retailers (and was where Gordman's entered the picture), comps rose 1% compared to a 5% drop last year.

DSW is also prepping for the acquisition of Canada's Town Shoes, which should occur sometime this year, but it's already starting to share services with the company and has identified digital and supply chain synergies they can potentially unlock when the deal finally does happen.

DSW's quarterly dividend is a rather pedestrian $0.20 per share, but it yields 4.1%, making it an attractive lure while the footwear retailer regains its balance. Sure, it's true that DSW hasn't raised the payout in a few years, but considering the rocky road it's been on, having the financial wherewithal to hold the dividend steady suggests that when its finances improve, investors should benefit from an increase.

Better late than never 

George Budwell (AstraZeneca): Not long ago, British pharma giant AstraZeneca appeared to be on the cusp of rethinking its progressive dividend policy after getting hit with critical setbacks for both its lung cancer drug Imfinzi and hyperkalemia medicine, ZS-9. The long and short of it is that Astra has desperately needed these new growth products to help cover its sky-high annualized yield of 4.12%. As proof, the company's trailing-12-month payout ratio currently sits at over 100%. 

A pipette dropping liquid into test tubes.

Image source: Getty Images.

Astra's luck, though, appears to be changing for the better. Late last week, for instance, the FDA granted Astra the right to market Imfinzi to stage III non-small cell lung cancer patients whose tumors are not able to be surgically removed and whose cancer has not progressed after treatment with chemotherapy and radiation.

In addition, American and European authorities are reportedly now satisfied with the drugmaker's responses to the manufacturing issues that have significantly delayed ZS-9's regulatory approval -- potentially paving the way for the drug's entrance into the market in the second half of 2018. That's key because ZS-9 is forecast to generate over $1 billion in sales at peak.   

Truth be told, Astra still has a lot of work to do in terms of improving its free cash flows to ensure that its juicy dividend is sustainable for the long haul. But the drugmaker is starting to put the wave of patent expirations behind it, and its next-generation blockbusters like Imfinzi and ZS-9 are starting to finally come online. As such, this high-yield dividend may be worth adding to your portfolio right now. 

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Stocks Mentioned

Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
BIP
$37.09 (0.71%) $0.26
AstraZeneca PLC Stock Quote
AstraZeneca PLC
AZN
$66.90 (3.80%) $2.45
Designer Brands Inc. Stock Quote
Designer Brands Inc.
DBI
$14.60 (7.91%) $1.07

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

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