Wondering if investing in dividend stocks is a smart move? I would point you to Warren Buffett. Buffett’s Berkshire Hathaway The portfolio is full of dividend stocks. And he is one of the smartest investors of all time.
You don’t have to be a billionaire to buy great dividend stocks. With a relatively small upfront amount, you can purchase multiple stocks with exceptional dividends. Here are my picks for the smartest dividend stocks to buy for $400 right now (in alphabetical order).
1. Ares Capital
You may not be familiar with it Ares Capital (NASDAQ:ARCC). However, mid-sized businesses across the U.S. are being impacted. Ares Capital is the largest publicly traded business development company (BDC) providing capital to the middle market.
The stock is cheap in two respects. First, Ares Capital’s stock price is below $21. Second, the stock trades at a forward price-to-earnings ratio of around 8.6 – a low valuation multiple for any industry.
What I particularly like about Ares Capital is the extremely high dividend yield of almost 9.4%. The BDC appears to be in a solid position to continue paying dividends, at least at current levels. It has a great track record in this regard. Ares Capital has paid a stable or growing quarterly dividend for 14 consecutive years.
Largely thanks to its strong dividend, Ares Capital’s average total return has exceeded value S&P 500 since the initial public offering (IPO) in 2004. The market for private capital continues to grow. Ares Capital’s reputation and expertise should allow the company to remain at the forefront of this market. I expect the stock to deliver excellent total returns in the coming years.
2. Enterprise Product Partners
Enterprise Products Partner (NYSE:EPD) is a leader in the U.S. midstream energy industry. The limited partnership (LP) operates over 50,000 miles of pipelines that transport crude oil, natural gas and natural gas liquids (NGLs) across the country.
You don’t have to spend the entire $400 up front to purchase multiple units from Enterprise Products Partners that are priced under $30 each. The market leader in the midstream energy sector also offers an attractive valuation with a forward earnings multiple of just under 11.
One disadvantage for Enterprise Products Partners is the tax expense associated with investing in LPs. However, I think the company’s juicy distribution yield of over 7% justifies the extra tax preparation effort. I also love that Enterprise has increased its sales for the 25th year in a row.
Is Enterprise Products Partners a smart choice in the long run, considering climate change could lead to a shift to renewable energy sources? I think so. Demand for oil and gas is also likely to increase as the use of renewable energy increases.
3. Pfizer
Pfizer (NYSE:PFE) For many investors, it probably needs no introduction. The company is one of the world’s largest drug manufacturers. The range includes several blockbuster drugs and vaccines.
This big pharma stock is easily affordable with a share price of around $27. Pfizer’s sharp decline since the end of 2021 has made its valuation more attractive. The drugmaker’s forward earnings multiple is now just over 12.1.
The poor performance of Pfizer shares has had another positive side effect for investors. At over 6.2%, the company’s dividend yield is near its highest level in over a decade.
I think Pfizer could achieve stronger growth in the next few years than current challenges reflect. The company expects the introduction of new products and new indications for existing products to result in annual sales of approximately $20 billion by 2030. The company is seeking business development deals to contribute an additional $25 billion in annual revenue by 2030.
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Keith Speights holds positions at Ares Capital, Berkshire Hathaway, Enterprise Products Partners and Pfizer. The Motley Fool has positions in and recommends Berkshire Hathaway and Pfizer. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
“The Smartest Dividend Stocks to Buy Right Now for $400” was originally published by The Motley Fool