Dividend stocks tend to produce steady growth with relatively low volatility. However, sometimes even the best dividend stocks can lose value even though their underlying businesses are performing well. Those declines are usually buying opportunities since they push their dividend yields higher. 

Three dividend stocks that currently stand out to our contributors as incredible bargains are water utility American Water Works (NYSE:AWK) and master limited partnerships (MLPs) Crestwood Equity Partners (NYSE:CEQP) and Enterprise Products Partners (NYSE:EPD).

$100 bills with the word dividend on top.

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The other side of the coin

Reuben Gregg Brewer (Enterprise Products Partners): Investors are, from a big-picture perspective, worried that the push toward clean energy will leave old-timers in the carbon energy space, like midstream giant Enterprise Products Partners, languishing. That's not unreasonable, given the shifting winds in Washington. But 7.8%-yielding Enterprise is in a pretty strong position, even if lean times are ahead for the broader energy industry.

With a $50 billion market cap, this limited partnership is one of the biggest midstream players in North America. It owns a widely diversified portfolio of largely fee-based assets that generate consistent cash flows to support its distribution. To put a number on that, it covered its distribution by 1.6 times in pandemic-hit 2020 (1.2 times has historically been considered strong coverage). Meanwhile, it has very low leverage relative to peers, so its balance sheet is rock solid, too. Looking at growth, it has $2.4 billion of capital investment projects lined up in 2021 and 2022 to help push the top and bottom lines higher.   

EPD Dividend Yield Chart

EPD Dividend Yield data by YCharts

That said, longer-term demand for new projects could ebb as clean energy becomes more prominent. But even in that scenario, Enterprise can use its size, diversification, and solid finances to buy smaller competitors. So, with the distribution yield still near the top end of Enterprise's historic yield range, long-term investors should do a deep dive while Wall Street is still trying to figure out what the future holds for this well-positioned midstream name.

A bottom-of-the-barrel valuation

Matt DiLallo (Crestwood Equity Partners): Units of Crestwood Equity Partners are down more than 15% since the start of 2020. That decline comes even though the MLP grew its earnings by 10% last year despite a very challenging oil market. The company expects to produce at least that same level of income this year, with upside potential if volumes improve due to higher oil prices. That has it on track to generate enough cash to cover its 9.7%-yielding distribution and its growth capital program with room to spare. That excess cash will enhance its financial flexibility while reducing its leverage ratio to its target range. 

Assuming Crestwood achieves the midpoint of its 2021 guidance, it trades at 7.5 times its earnings and 5.4 times cash flow. Meanwhile, it's even cheaper at 7.1 times earnings and five times cash flow at the upper end of its forecast. The company said a higher-end finish is increasingly achievable in a prolonged environment of $55 to $60 oil, which seems likely since crude is currently above $65 a barrel. Those are dirt cheap levels for a company that's generating lots of reasonably stable cash flow. It's on track to produce enough cash in 2021 to cover its high-yielding dividend by two times. Because of that, it has lots of financial flexibility to fund growth projects, make acquisitions, and repay debt. That combination of a low valuation, an ultra-high-yield, and an improving balance sheet makes Crestwood seem like an opportunity that income-focused investors won't want to overlook.

The dividend growth no one's looking at

Neha Chamaria (American Water Works): American Water Works stock has fallen nearly 17% in just the past month, but I see absolutely no logic behind the drop given the company's unquestionably strong fundamentals. To the contrary, American Water delivered solid numbers for 2020 and a hugely encouraging long-term outlook last month, making it a compelling dividend stock to consider buying while it's still cheap.

American Water is, in fact, one of the most underrated dividend stocks out there. Consider that the company has increased dividends every year since it went public in 2008 and gifted shareholders a 10% hike in 2020. Those dividend increases aren't going anywhere: Management is targeting annual dividend increases at the high end of 7% to 10% between 2021 and 2025, underpinned by a similar growth in earnings per share.

There's little reason to believe American Water won't hit its financial goals. As the largest publicly listed water and wastewater utility in the U.S., it has excellent clout in a regulated, essential services industry that's pretty much insulated from economic upheavals. While that ensures a steady flow of income and cash flows, the company consistently spends on infrastructure to win timely approvals for rate increases to grow its top line. So for example, it expects 7% to 10% growth in rate base through 2025.

While American Water's dividend yield of 1.6% may not entice, the stock's dividend growth has contributed significantly to shareholder returns in the past, and that's unlikely to change anytime soon.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.