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The Smartest Dividend Stocks to Buy With $400 Right Now

Motley Fool - Sat Apr 13, 4:47AM CDT

Wondering if investing in dividend stocks is a smart move? I'd point you to Warren Buffett. Buffett's Berkshire Hathaway portfolio is loaded with dividend stocks. And he's one of the most intelligent investors of all time.

You don't have to be a billionaire to buy great dividend stocks. A relatively small amount of upfront money will allow you to scoop up several stocks with exceptional dividends. Here are my picks for the smartest dividend stocks to buy with $400 right now (listed alphabetically).

1. Ares Capital

You might not be familiar with Ares Capital(NASDAQ: ARCC). However, middle-market companies across the U.S. are. Ares Capital is the biggest publicly traded business development company (BDC) providing capital to the middle market.

The stock is cheap in two ways. First, Ares Capital's share price is under $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 especially like about Ares Capital is its ultrahigh-dividend yield of nearly 9.4%. The BDC appears to be in a solid position to keep paying dividends at least at current levels. It has a great track record on this front. Ares Capital has distributed a stable or growing quarterly dividend for 14 consecutive years.

Thanks largely to its strong dividend, Ares Capital's average total return has trounced the S&P 500 since its initial public offering (IPO) in 2004. The market for private capital continues to grow. Ares Capital's reputation and expertise should enable it to remain at the top of this market. I expect the stock to deliver excellent total returns for years to come.

2. Enterprise Products Partners

Enterprise Products Partners(NYSE: EPD) is a leader in the U.S. midstream-energy industry. The limited partnership (LP) operates over 50,000 miles of pipelines transporting crude oil, natural gas, and natural gas liquids (NGLs) across the country.

You won't have to use all of an upfront $400 to buy multiple units of Enterprise Products Partners with its unit price below $30. The midstream-energy leader also offers an attractive valuation with a forward-earnings multiple of a hair below 11.

One knock against Enterprise Products Partners is the tax hassle associated with investing in LPs. However, I think the company's juicy distribution yield of over 7% justifies the extra effort with tax preparation. I also love that Enterprise has increased its distribution for 25 consecutive years.

Is Enterprise Products Partners a smart long-term pick with concerns about climate change spurring a shift to renewable energy sources? I think so. The demand for oil and gas will likely grow even with increased renewable energy adoption.

3. Pfizer

Pfizer(NYSE: PFE) probably needs no introduction for many investors. The company ranks among the world's largest drugmakers. Its lineup includes multiple blockbuster drugs and vaccines.

This big pharma stock is easily affordable with shares trading around $27. Pfizer's steep decline since late 2021 has made its valuation more attractive. The drugmaker's forward-earnings multiple is now a little over 12.1.

Pfizer's dismal stock performance has also provided another positive side effect for investors. The company's dividend yield of over 6.2% is near the highest level in over a decade.

I think Pfizer could deliver stronger growth over the next few years than its current challenges reflect. The company expects the launches of new products and new indications for existing products to add around $20 billion in annual revenue by 2030. It looks for business development deals to contribute another $25 billion in annual revenue by 2030.

Should you invest $1,000 in Pfizer right now?

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Keith Speights has positions in 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.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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