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3 Top Dividend Stocks to Buy Now

By Neha Chamaria, Rich Duprey, and George Budwell – May 7, 2019 at 8:30PM

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Give these under-the-radar companies a closer look.

Owning dividend stocks is one of the best possible ways to earn passive income. Just find some great companies that keep doling out regular dividends -- even growing them at times -- with decent yields, and you should be able to smartly supplement your income in the long run.

If that got you thinking already, here are three dividend stocks our Motley Fool contributors believe are worth buying now: Abercrombie & Fitch (ANF -8.91%), Brookfield Infrastructure Partners (BIP -1.30%), and AbbVie (ABBV -0.54%).

A teen retailer reborn

Rich Duprey (Abercrombie & Fitch): Forget what you know about Abercrombie & Fitch, because this is no longer the preppy teen retailer you remember. CEO Fran Horowitz has refreshed and rejuvenated the one-time fashion icon, turning a dying business into one that not only can survive but may even thrive.

The resurrection occurred because the Abercrombie brand has been minimized and its sister brand Hollister promoted. Gone is the dated sun-and-surf vibe; in its place has arisen a more modern fast-fashion retailer that has posted nine straight quarters of higher comparable-store sales.

Today there are more than 540 Hollister stores in operation around the world, compared to almost 320 Abercrombie stores.

A roll of hundred-dollar bills with a "dividends" note beside it.

Image source: Getty Images.

Most impressive have been Abercrombie's e-commerce efforts, which, after a 36% surge in the fourth quarter, ended 2018 with more than $1 billion in sales through that channel. Management forecasts more overall growth to come, with strong top-line growth and both gross and operating margin expansion. In short, Abercrombie & Fitch is a relevant retailer again.

Its quarterly dividend of $0.20 per share yields a healthy 2.8%, which is a nice payoff for further anticipated share gains this year. Even though the stock is up 50% this year, it trades at just a fraction of its sales and goes for a very discounted 13 times the free cash flow it produces.

Where once I expected Abercrombie to close its doors forever, today it looks like a fashion-forward leader once again.

A lot of steam left in this 4.9%-yielding stock

Neha Chamaria (Brookfield Infrastructure Partners): Investors who looked beyond the headlines and bought Brookfield Infrastructure Partners some months ago while it was trading ridiculously cheap must be sitting on hefty returns now. Yet income investors shouldn't feel they've missed the bus -- the company has strong growth potential, and the stock remains a great pick even at current prices, with a dividend yield of 4.9%.

In its just-reported first quarter, Brookfield Infrastructure grew funds from operations (FFO) by 4.4%. That's not too great, but the company not only faced significant foreign-currency translation headwinds but also is churning its portfolio, which makes year-to-year comparisons a bit rough. Right now, Brookfield Infrastructure is focusing intently on selling mature assets and reinvesting proceeds opportunistically. That's an essential part of its business, which involves owning and operating assets in key sectors like utilities, transportation, energy, and data infrastructure and disposing of assets as and when they mature.

So by the end of 2020, Brookfield Infrastructure expects to raise $1.5 billion to $2 billion from asset sales after raising $1.1 billion in 2018. Meanwhile, recent acquisitions such as a natural gas pipeline in India and a data center business in South America should start contributing to the company's FFO even as it completes other important acquisitions, like that of Enbridge's Western Canadian midstream business. These moves and other opportunities that the company might pursue should help it attain its medium-term goal of FFO per unit growth of 6% to 9%, which should mean steadily rising dividends for shareholders.

A golden opportunity

George Budwell (AbbVie): If you're beating the bushes for a top dividend stock to buy this month, I think the large-cap biopharma AbbVie should be on your radar right now. While AbbVie's shares have lost more than 13% of their value so far this year, this sharp retreat shouldn't necessarily scare away potential investors.

On the contrary, I believe AbbVie's shares are an outright bargain following this downturn for a couple of reasons. Apart from the fact that AbbVie's stock is presently trading at less than nine times next year's projected earnings, the company has already proven that its post-Humira game plan has legs. The market, however, has yet to realize its profound mistake, much to the benefit of bargain hunters and income investors alike.

What is the market missing? AbbVie has five major drugs and drug candidates -- Imbruvica, Orilissa, risankizumab, upadacitinib, and Venclexta -- each capable of delivering megablockbuster sales for a long time to come. AbbVie, in fact, expects its next-generation immunology drugs, risankizumab and upadacitinib, to replace more than half of Humira's current sales by themselves.

Yet the market clearly hasn't bought into this story due to the tough competitive landscape facing AbbVie's immunology and hematology franchises. Personally, though, I think AbbVie deserves the benefit of the doubt, given the company's ability to transform Humira into the world's best-selling drug and its breakout success with both Imbruvica and Venclexta.

Bottom line: I think AbbVie's sky-high yield of 5.38%, attractive valuation, and rapid pace of innovation are three solid reasons to buy this top biotech stock right now.

George Budwell owns shares of AbbVie. Neha Chamaria has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
BIP
$35.01 (-1.30%) $0.46
Abercrombie & Fitch Stock Quote
Abercrombie & Fitch
ANF
$14.92 (-8.91%) $-1.46
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$139.54 (-0.54%) $0.75
Enbridge Inc. Stock Quote
Enbridge Inc.
ENB
$37.36 (0.46%) $0.17

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

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