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3 Dividend Stocks I'd Buy Right Now

Not every investment opportunity has to be accompanied by a flashy and recognizable name. In fact, when it comes to income investing, sometimes the best dividend stocks to buy are boring businesses that dominate their respective markets. Boring can be pretty rewarding.

That's why if I were looking to buy any dividend stocks right now, I would strongly consider A. O. Smith Corp. (NYSE: AOS), Enable Midstream Partners LP (NYSE: ENBL), and International Flavors & Fragrances (NYSE: IFF). Each stock in the diverse trio has unique strengths that would make it a fine addition to any portfolio.

Image source: Getty Images.

Providing a staple of modern living

You may have never heard of A. O. Smith Corp., but chances are you have used one of its products at some point. You may even use a product from the company each and every day without realizing it.

The company is a leading manufacturer and brand owner of residential water heaters, commercial boilers, and water treatment technologies. It owns the top market share in its four largest residential and commercial markets in North America and China, which has provided exceptionally consistent growth for the top line, bottom line, and operating cash flow this decade. 

Why would I buy A. O. Smith Corp. stock right now? It provides an amazing growth opportunity for at least the next decade, having even smoked the returns of higher-profile growth stocks such as Amazon and Apple since late 2011, when it began focusing exclusively on water technologies. And while the dividend yield stands at just 1% today, the company is so efficient at turning sales into cash that investors may regret overlooking the potential here.

AOS data by YCharts.

Last year, A. O. Smith generated $2.7 billion in total revenue, with two-thirds generated in North America and most of the balance from China. Yet, the latter has been and should continue to be the biggest driving force for operating cash flow, which grew from just $279 million in 2013 to $447 million in 2016. That allowed management to increase the dividend payout 180% in the same period. 

It gets better. Not only is the Chinese market on pace to become the top segment for the company by 2023, but management thinks the long-term market opportunity in India is on par with that uncovered in China in recent years. Considering that sales in India totaled just $18 million last year, compared to $887 million in China, this budding dividend stock could be a great lesson in Compound Interest 101 for long-term investors.

A high-risk, high-reward payout

Enable Midstream Partners LP stock took it on the chin when energy prices collapsed in late 2014, but the business has been showing signs of strength more recently. Revenue and net income have trended upward since the first quarter of 2016. Both quarterly metrics hit multiyear highs in the first quarter of 2017. 

While the trend is encouraging, distributions have still exceeded earnings per share in recent periods. That can be dangerous for master limited partnerships if it continues for too long. Even with that risk in mind, I'm intrigued by Enable Midstream Partners LP. Why? Despite volatility in recent years, it has churned out consistent operating cash flow -- and long-term growth appears to be in hand.

ENBL data by YCharts.

The company's assets are located in strategic energy plays such as the Bakken, Anadarko, and Arkoma basins. More specifically, the midstream operator owns nearly 12,900 miles of pipelines used to gather raw natural gas from the field and transport it to processing facilities with 2.5 billion cubic feet per day of capacity. The gathering and processing segment generates 58% of the business' gross margin. The remaining 48% is derived from its transportation and storage segment, which leverages 10,000 miles of distribution pipelines and 85 billion cubic feet of storage capacity.

Now consider that the three major geographies served by its asset base -- the South Central Oklahoma Oil Province (SCOOP), the Sooner Trend Anadarko of Canadian and Kingfisher (STACK), and Haynesville -- are expected to grow natural gas supply by a combined 4.8 bcf/d by 2027. That represents 67% growth from today's regional volumes. 

That also represents a major long-term opportunity for Enable Midstream Partners LP. The company has already announced two projects, called Wildcat and CaSE, that will add a combined 0.6 bcf/d of processing and transportation contracts when they come on line by the end of 2018. Both will be accretive to 2018 distributable cash flow. Together, they provide a glimpse into the high-reward business opportunity management is targeting. It could be a boon for long-term investors, too, as the company racks up long-term contracts and then sits back and watches the fee-based revenue pour in.

Under-the-radar growth potential

International Flavors & Fragrances is another under-the-radar dividend stock that you may have never heard of but have almost certainly used its products. The company -- along with the rest of the flavor and fragrance industry -- engineers and manufactures scents and food ingredients that go into everything from laundry detergent to ice cream but operates mostly behind the scenes.

Don't mistake that for a lack of size or opportunity. International Flavors & Fragrances is a $10.6 billion company that generated $3.1 billion in sales last year, which ranked third highest in the industry. It has notched EPS of at least $5 for three straight years and grown operating cash flow 31% since 2013. Annual dividend payments have grown 112% in the same time. 

IFF data by YCharts.

A not-insignificant amount of the margin improvement at the company in recent years has come from reducing capital expenditures and head count. That's because the flavor and fragrance industry has essentially hit its innovation limit as far as gains that can be wrung out of synthetic chemistry are concerned. Then again, that's what makes the potential opportunity represented by synthetic biology so amazing.

Most flavors and fragrances are made in two ways: synthetic chemistry or growing rare plants through agriculture. The former produces simple ingredients that do a good enough job of mimicking natural counterparts. More important, it does so at prices that have allowed nearly all consumer products to taste or smell awesome in the last half century or so. The latter produces complex mixtures of natural ingredients that cannot be accessed through chemical shortcuts, but can be ridiculously expensive and inefficient to produce. Synthetic biology promises to offer the best of both worlds: complex ingredients at economical prices.

International Flavors & Fragrances has been one of the most aggressive investors in the field because it sees the growth potential. Additionally, management has outlined a strategy to capitalize on emerging consumer trends that promise higher-margin growth opportunities for the near and medium terms. The combined opportunities should allow the stock to continue growing -- and take the dividend along for the ride.

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Maxx Chatsko has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool has a disclosure policy.