With interest rates on fixed income investments such as treasuries and corporate bonds at rock-bottom lows, you might expect investors to flock to dividend stocks as income sources. But investors seem more interested in chasing growth stories this year, and income stocks as a whole have underperformed the market.

For investors who like bargains, that means opportunity. Here are three stocks of solid businesses that are currently out of favor, but that will almost certainly make comebacks. When they do, stock pickers who were willing to buck the trend will likely end up with handsome capital gains to go along with a steady stream of dividend income for years.

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Bristol Myers Squibb

Large capitalization pharmaceutical stocks haven't done very well this year, with stock buyers looking for faster growth and perhaps worrying about political risks to drug pricing in an election year. Investors also have been cool on Bristol Myers Squibb (BMY -0.68%) for a few years now as its blockbuster cancer drug Opdivo lost share to Merck's Keytruda. The company's megadeal merger with biotech Celgene was another reason to wait on the sidelines, given the huge price tag and the fact that Celgene's top-selling drug Revlimid will face generic competition in coming years. Shares of Bristol Myers are down 12% from their 365-day high.

But the benefits of the Celgene deal should become more obvious in the next year or two. The increased volume will raise margins for Bristol Myers and the company says it's on track to take out $2.5 billion in annual costs by the end of 2022. Even more important for long-term growth is the huge pipeline of drug candidates for the combined company, including 50 different compounds in 40 disease areas. Bristol won approval from the U.S. Food and Drug Administration for a new leukemia drug in September and expects five other significant new drug launches in the near term.

Bristol Myers generated $8.2 billion in operating cash in the first half of 2020, plenty to cover $2 billion in dividend payouts to support its 3% yield. It will likely announce a dividend hike in December. A steady growth business selling at a cheap eight times analyst estimates of 2021 earnings per share makes Bristol Myers one of the best bargains in the market.


Investors have kicked energy stocks to the curb this year, thanks to a plunge in energy prices and worries that global oil consumption is in a long-term decline. Enbridge's (ENB -0.71%) business has been remarkably resilient against these headwinds, but its share price is still down 34% from recent highs.

Enbridge is a diversified energy infrastructure company, with oil pipelines transporting 65% of the crude oil and liquids exported from Canada into the U.S. and natural gas pipelines that move about 19% of the natural gas consumed in the U.S. The company is also in the early stages of building a renewable power generation business. Most of Enbridge's income is based on fees for using its infrastructure, largely insulating it from energy prices. The company estimates that less than 2% of its cash flow is at risk from adverse market price movements.

Volumes declined in the latest quarter, but the company managed to grow distributable cash flow (DCF) by 5.5% and maintained the guidance for 2020 DCF that it gave last December. Dividend investors should be pleased that the company's ability to pay the dividend was basically unaffected by the pandemic and turmoil in the energy markets.

That dividend is quite robust. The yield is 8.7% now, a figure that you'd typically see when the market expects a payout cut. On the contrary, the company expects 5% to 7% annual DCF growth through 2022. That expectation bodes well for a dividend hike -- something this high-quality income stock has delivered annually for the last 25 years, including a 9.8% boost last December.

Retail Opportunity Investments Corporation

The stocks of successful retail businesses have made a comeback already, but those of their landlords are still in the bargain basement. Retail Opportunity Investments Corporation (ROIC -0.24%) is bouncing back from the effects of the business shutdown, but shares are down a whopping 46% after the real estate investment trust (REIT) suspended its dividend out of caution earlier this year.

ROIC specializes in shopping centers anchored by grocery stores in generally affluent areas on the West Coast. The fact that 78% of its square footage was leased to tenants deemed "essential" mitigated the effects of the pandemic, but rent deferral arrangements with struggling tenants such as restaurants and fitness centers meant that rent collections were only 81.9% of billed base rent during the second quarter. Funds from operations fell 11% from the period a year earlier to $29.2 million.

Third-quarter results reported on October 26 beat expectations and painted a picture of steady recovery. Rent collections were up to 88.7% in the quarter, and funds from operations improved to $31.6 million, down only 5.4% year over year. The company paid off the temporary loan it took out as a precautionary measure in the early days of the pandemic. ROIC is seeing high demand for its properties, and was thus able to increase rents by double digits on new leases and renewals.

ROIC will resume dividend payouts in Q1 of 2021. Although it may not return immediately to quarterly payments of $0.20 (a yield of 7.8% on today's share price), dividend investors willing to buy this quality company on sale today can reasonably expect some significant capital gains as the business continues to recover.