3 Dividend Stocks for In-the-Know Investors

With U.S. Treasury bond yields climbing and interest rates inching up in 2018, some investors might see significant incentive to shift their attention away from dividend stocks. Keeping the broader economic and investing climate in mind is certainly prudent, but ignoring stocks as income vehicles just because savings accounts and bonds have gained appeal is a recipe for missing out on worthwhile investments.

We asked three Motley Fool contributors each to identify a top income-paying company that's primed to deliver strong returns for shareholders. Here's why WestRock (NYSE: WRK), Tanger Factory Outlet Centers (NYSE: SKT), and AT&T (NYSE: T) made their list of dividend stocks that in-the-know investors should add to their portfolios.

A 3% yield with growth on the way

Maxx Chatsko (WestRock): Investors may not think to add a paper and packaging company to their portfolios, but the top stocks in the industry have historically outpaced the total return of the S&P 500 over the long term. Considering Wall Street has sent shares of both International Paper and WestRock lower by double digits since the beginning of 2018, that track record would appear to be at risk. But an argument can be made that it's really just a sweet opportunity for long-term investors.

Wall Street is worried that the trade war between China and the United States will cut off an important growth avenue for North American paper and packaging companies, which are enjoying record sales of and multiyear-high selling prices for corrugated packaging (read: cardboard). However, unlike, say, agricultural products, there aren't any other countries that can step in to permanently steal market share that may be lost by American paper mills during the trade spat. In fact, although stock prices are sliding, there's no sign that the trade war is having any effect on the real-world businesses.

For instance, WestRock delivered double-digit growth in revenue, gross margin, and operating margin in the first nine months of fiscal 2018 compared to the year-ago period. Shareholders were rewarded with a more-than-7% increase in both net income and operating cash flow in that span, too. And the best may be yet to come.

WestRock will soon close its acquisition of KapStone, which will bolster its corrugated packaging business (the highest-margin part of the industry) and allow it to continue capitalizing on increased global demand for cardboard. The ability to increase profits and cash flow bodes well for also growing the dividend, which currently yields 3%.

The addition of KapStone will immediately boost annual sales by 25%, and, once fully integrated in a few years, will contribute an attractive level of EBITDA for the acquisition price. Considering WestRock was itself formed by a megamerger in the industry, and that management has made good on its synergy and integration targets (ahead of schedule), long-term investors looking for dividends may want to give this stock a closer look.

A different kind of retail play

Leo Sun (Tanger Factory Outlet Centers): Tanger Factory Outlet Centers owns a portfolio of 44 upscale outlet shopping centers in 22 U.S. states and Canada, serving over 189 million shoppers annually. It leases its properties to over 3,100 stores from more than 510 different companies.

Tanger's stock has fallen about 10% this year as real estate investment trusts (REITs), which are usually owned for income, became less attractive investments when compared to bonds in a rising interest rate environment. Tanger was also weighed down by concerns about brick-and-mortar retailers closing stores and leaving its centers.

Last quarter, Tanger's consolidated portfolio occupancy rate of 95.6% represented a dip from 95.9% in the previous quarter and 96.1% a year earlier, but it remains above 95% -- a threshold that it hasn't slipped below for nearly four straight decades.

Tanger's revenue stayed nearly flat during the quarter, but its net operating income grew 0.8% and its funds from operations (FFO) per share rose $0.01 year over year to $0.60 and topped estimates. Those growth rates seem glacial, but Tanger's stock trades at about 10 times its estimated FFO per share this year, and it pays a big forward dividend yield of 5.9%. The REIT has raised that dividend for 25 straight years.

Tanger might be an easy target for REIT and retail bears, but its low valuation and high yield make it a good income play for patient investors.

Underappreciated growth prospects and a huge yield

Keith Noonan (AT&T): For long-term investors looking for big dividend payouts, AT&T presents an attractive opportunity at current prices. The stock isn't exactly a name that's flying under the radar, but the telecom giant's opportunities to expand profits amid strong competition in the wireless service segment and cord-cutting trends hitting TV land could be widely underestimated.

The company certainly has big challenges to contend with, but it also has underappreciated growth prospects. If the Time Warner acquisition survives additional challenges from the Justice Department, it will provide AT&T (which is America's largest wireline service provider, second-largest mobile network, and biggest pay-TV provider) an even bigger long-term edge in service bundling. The merger should allow the combined company to benefit from an expanding global market for entertainment content and could pave the way for targeted mobile ad delivery, with Warner content generating as much as five times ad revenue compared to the current cable market rate.

AT&T also has a big opportunity to benefit from the Internet of Things trend and the rollout of 5G, the next major leap forward in wireless internet technology. The push to expand 5G will be a capital-intensive, but there should be some relief on that front, as it stands to see long-term benefits from more favorable tax policy following the Tax Cuts and Jobs Act that was passed last year.

AT&T stock is priced at just nine times this year's expected earnings and packs a whopping 6.2% dividend yield. Shareholders can feel reasonably secure in expecting slow-but-steady payout growth, as well. The company has delivered annual payout growth for 34 years running, and the cost of distributing its current payout comes in at a reasonable 67% of trailing free cash flow.

With a dividend that more than doubles the 10-year Treasury bond yield, a high likelihood of more payout growth to come, and underappreciated growth prospects, AT&T is a stock worth owning for income-seeking investors.

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Keith Noonan owns shares of AT&T. Leo Sun owns shares of AT&T and Tanger Factory Outlet Centers. Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.