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3 Best Dividend Stocks That Wall Street Is Sleeping On

By James Brumley – Dec 11, 2021 at 10:15AM

Key Points

  • Western Union is the original name in the money-wiring business -- and it is still thriving.
  • AbbVie has lagged because of patent expiration concerns, but new products are coming to the fore.
  • Already a success with consumers, Citigroup continues to expand it services.

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Don't let the market's apparent disinterest fool you into thinking that's a reflection of their value.

If you're an income-minded investor, you've been out of luck for a long while now. Not only have interest rates been unusually low since we recovered from the subprime crisis back in 2009, but it has also kept dividend yields similarly suppressed -- even as growth stocks have also dramatically outperformed.

That doesn't mean dividend-paying companies aren't doing what they're supposed to do. Many are actually doing more than well enough to keep funding their payouts with a little left over. Yet Wall Street isn't giving these names much respect. That could be a big mistake as we may well be on the cusp of a rotation out of growth stocks and into income-oriented ones.

Here's a rundown of three great dividend stocks not only positioned to keep making their payments, but primed to produce good capital gains as well.

Western Union

Dividend yield: 5.3%

Yes, The Western Union Company (WU 1.80%) is still around -- although its telegram days are in the distant past. It's strictly a money-transfer entity now. That's a crowded arena these days, to be sure, with popular peer-to-peer cash transfer companies like PayPal Holdings and its Venmo readily available.

Yet, don't dismiss the marketability of Western Union's wire-based money transfer service. Western Union's approach is seemingly more antiquated, but for consumers that don't have a traditional bank account to link to their PayPal account or don't have access to the internet, the company's cash-based service is a more convenient option. And, the company's got incredible geographic reach, with stations in every country in the world except Iran and North Korea.

A stack of Post-its with the word "dividends" written on the top.

Image source: Getty Images.

While it's not a high-growth business, it's a consistent and reliable one. Stripping out one-off losses booked in late 2016 and then again in late 2017, this company hasn't failed to turn a profit since the early 2000s. And it's managed to grow its per-share bottom line most of that time even if it's taken a lot of stock repurchases to drive much of that progress. Indeed, the fact that the company can support a share buyback program that's nearly cut its outstanding shares in half since 2007's peak is impressive in itself.

Better still, those earnings are more than adequate to cover those payouts. Western Union has provided a $0.94 dividend over each of the past four quarters, and the company anticipates earning no less than $1.80 per share for the current fiscal year set to end this month.

Perhaps best of all, investors have let this stock slip more than 30% to less than eight times next year's expected earnings.

AbbVie

Dividend yield: 4.6%

Shares of drugmaker AbbVie (ABBV 1.01%) haven't suffered the same losing performance this year that Western Union's stock has. In fact, they're up a reasonably healthy 13% since the end of 2020; yet they lag the broad market's bigger advance, suggesting the company is underestimated and leaving lots of room for more upside.

You may be more familiar with the drugmaker's flagship products than the organization itself. AbbVie is the name behind cancer-fighting therapies like Imbruvica, facial treatment Botox, and a slew of other products. Its biggest seller -- rheumatoid arthritis drug Humira -- accounted for 40% of last quarter's revenue.

That's seemingly a problem. Humira's patent protection is slowly withering away here and abroad with biosimilar versions of the drug scheduled to hit the market in 2023. That'll take a big bite out of AbbVie's total revenue. That's also why the stock has lagged the overall market for the better part of the past few years. Investors are anticipating this headwind.

What investors may not be seeing, however, is the potential of the company's drug-development pipeline. AbbVie estimates that its immunology drugs Skyrizi and Rinvoq will collectively generate more than $15 billion worth of annual revenue by 2025 -- up from only a little over $1 billion now -- and won't reach their peak sales until the 2030s. Meanwhile, annual sales of oncology drug Imbruvica could reach on the order of $10 billion well before then vs. last year's tally of $5.3 billion.

The point is, while there may never be another Humira, Abbvie is moving into position to maintain its revenue stream and healthy dividend payouts.

Citigroup

Dividend yield: 3.3%

Finally, add Citigroup (C 0.46%) to your list of dividend stocks to consider even if a bunch of other investors and most of Wall Street aren't especially interested.

There's a lot to like here. Granted, it's tough to pinpoint any of the big bank's leading qualities. On the surface it just looks like most of its banking peers, offering loans as well as ancillary services such as brokerage, wealth management, and investment banking. It's not as if Citibank is doing anything dramatically different than its competitors are.

But it's doing many of those things better. Last month, Global Finance magazine named Citi the world's best digital bank -- and though that accolade is an acknowledgement of the company's capacity to connect with consumers, Citigroup is just as impressive on the institutional front. In October, the bank launched a platform that allows its institutional customers to deliver and collect payments on invoices sent to Citi's consumer customers in real time. It's not only faster for both parties, but also easier.

Initiatives like these are a key part of the reason Citigroup is one of the more buffered megabanks. If nothing else, the company does a great job of keeping its customers around -- and monetizing them when the time and opportunity is right.

Case in point: While it's steering clear of helping investors outright speculate on cryptocurrency prices, Citi does see value in becoming more knowledgeable. Just a couple of weeks ago the company announced it would be adding 100 more employees to its crypto staff. Citigroup is seeking to be ever-ready for whatever lies ahead.

You can jump into the stock now at a price that's barely higher than what it was one year back -- and even four years ago. You'll also be getting it at a time when its 3.28% dividend yield stands head and shoulders above the payouts of its peers.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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