Although narrowing the universe of stocks to those that pay dividends narrows the field considerably, it doesn't really help to identify those that are best for your portfolio right this minute.
That's why we asked three Motley Fool contributors to each highlight one dividend-paying stock that they think is a top buy right now. Here's how AstraZeneca (AZN -0.13%), Brookfield Infrastructure Partners (BIP 0.56%), and DSW (DBI 0.46%) can be a boon to any portfolio today.
Biopharma's best dividend play
George Budwell (AstraZeneca): AstraZeneca is arguably one of the best dividend stocks to own for a couple of reasons. Apart from the fact that the drugmaker's annualized yield currently sits at a handsome 3.42%, Astra's stock is also grossly undervalued when viewed in the context of its longer-term growth outlook. As things stand now, Astra's shares are trading at around 2 to 2.2 times its projected 2023 annual sales. That's among the lowest within the entire industry.
Why are Astra and its juicy dividend being overlooked by the market? Well, to be fair, the market has started to warm up to Astra's stock this year. The drugmaker's shares, after all, have crushed the broader indices by producing a total return on capital of 24% so far this year. Even so, Astra's stock is anything but expensive right now, thanks to its rocky entrance into the realm of immuno-oncology.
Previously, Astra's management staked the company's turnaround largely on its pivot to immuno-oncology. But this strategy hasn't gone exactly to plan. Its lead drug, Imfinzi, missed the mark in front-line lung cancer last year, leading some on Wall Street to doubt the company's ability to develop a premiere immuno-oncology lineup that can compete with front-runners Bristol-Myers Squibb and Merck & Co.
Since then, though, Astra has bounced back by grabbing other high-value approvals for Imfinzi and developing an overall well-rounded oncology portfolio. Astra should thus be able to achieve its stated goal of generating more than $45 billion in annual sales in the next four years, making it one of the fastest-growing large-cap biopharmas in the industry. This stellar top-line growth, in turn, should help to support Astra's so-called progressive dividend policy that aims to maintain or grow the dividend every year.
It's time you pay attention to this underrated dividend stock
Neha Chamaria (Brookfield Infrastructure Partners): I've been rooting for Brookfield Infrastructure Partners for some months now, and some of the things that management said during the company's latest earnings call further strengthen my conviction that now is a good time to pick this dividend stock.
On the face of it, Brookfield's third-quarter numbers disappointed. However, an asset sale and currency fluctuations are a blip in the company's long-term growth story. Growth in Brookfield's funds from operations (FFO) should pick up in coming months as the company pumps $1.7 billion into acquisitions. Deals in the pipeline include data centers in Brazil and natural gas pipelines in India. These come close on the heels of Brookfield's acquiring HVAC company Enercare and part of energy giant Enbridge's Canadian natural-gas gathering and processing business.
Stronger FFO should lead to bigger dividends. Management is committed to increasing dividends by 5% to 9% annually in the long run. Brookfield has grown its distribution at an impressive compound annual rate of 11% since 2009. When you combine that with the stock's current yield of 4.7%, you realize that Brookfield is a perfect combination that you'd desire in a dividend stock: high yield plus dividend growth. Even better, the growth is backed by strong FFO. That's what makes the stock a buy in my book.
A stubbed toe leads to opportunity
Rich Duprey (DSW): Shoe retailer DSW looked like it had two left feet after it stumbled hard following the announcement it was buying, for $375 million, the Camuto Group, a high-end brand designer and developer. It's a completely new line of business for the shoe seller, putting it into the manufacturing business, and it risks damaging relationships the company has with certain retail outlets that might not want to be competing against a business that is also a supplier.
After rebounding nicely over the course of a year, DSW's stock fell sharply, losing a quarter of its value in less than two months. Coupled with abandoning the Canadian mall-based Town Shoes chain (38 stores) shortly after acquiring it, DSW's acquisitiveness seemed to have turned the market off. In Canada, the company still has Shoe Company, Shoe Warehouse, and DSW Designer Shoe Warehouse.
Yet the majority of DSW's business is on the right foot again. Comparable-store sales surged almost 10% last quarter, and gross margins improved 230 basis points on an organic basis. It has a strong member loyalty program with 25 million members, which it credited with driving new customer transactions, average spending per member, reward redemption, and member activation rate.
After the pullback, DSW shares trade at 14 times both this year's earnings and the free cash flow it produces. Its $1-per-share dividend currently yields 3.8%. While there is risk the Camuto Group acquisition could become a distraction and cause its business to fall as badly as its stock, DSW has a seasoned management team that ought to be able to keep it on an even footing.