The S&P 500 Is Expensive, but These 3 Dividend Stocks Still Look Like Bargains

The S&P 500 has been resilient this year, rising amid a war in Iran, rising oil prices, and concerns that interest rates may increase in the near future. It's already up 11% entering trading on Tuesday, as bullishness around tech is largely responsible for its rising value.

However, that shouldn't scare you off from buying stocks because while many may be overpriced, there are still good options out there. The dividend stocks listed below have attractive valuations, and they can be extremely valuable investments that can generate plenty of cash flow for your portfolio. Here's why AbbVie (NYSE: ABBV), CVS Health (NYSE: CVS), and Verizon Communications (NYSE: VZ) can still be excellent buys right now.

Image source: Getty Images.

AbbVie

Pharmaceutical giant AbbVie has a market cap of around $375 billion, but given how strong and robust its business is, its valuation isn't all that high. At first glance, you might look past the stock given that it trades at a price-to-earnings (P/E) multiple of over 100. But that's on a trailing basis, and acquisitions have weighed on its bottom line. On a forward-earnings basis, which factors in analyst expectations for what its profits will look like in the year ahead, it trades at an earnings multiple of just 15. That's well below the S&P 500 average of 22.

AbbVie has a diverse product mix that enables the company to generate consistently strong results. In the trailing 12 months, it has reported free cash flow of just under $20 billion. That's crucial for the company to be able to fund its dividend, which currently yields 3.3%, and to help it reinvest into its future growth. AbbVie spent $11.8 billion on its dividend over the past four quarters, which means the free cash it's generating is sufficient to help it grow its business while still offering a fairly high payout.

The company has also been raising its dividend for years, giving investors an incentive to simply buy and hold the stock. While shares of AbbVie are down 7% this year, it's an underrated buy for the long run.

CVS Health

A stock that's been garnering much more positive attention from investors these days is CVS Health, which has risen 14% this year. For a while, the business struggled with higher costs in its insurance business, and there were concerns that people would go online to buy prescription medications, rendering its pharmacies obsolete.

But the company's operations are proving to be resilient. CVS's financials have been improving, and the business is looking much safer than it was even a year ago. While its margins aren't all that high, the company has also generated strong free cash flow, totaling $7.4 billion over the past 12 months, well in excess of the $3.4 billion it paid in dividends during that period.

The healthcare stock trades at a forward P/E of just 12, and its yield of 2.9% may be the lowest on this list, but it's still nearly three times that of the S&P 500's average of just over 1%.

Verizon Communications

Another top dividend stock to consider is Verizon. The telecom giant offers the highest yield on this list at 5.9%, and that's actually come down this year as the stock has rallied 17%. Investors are finally realizing that the company's dividend is indeed safe. And with its yield remaining high and its valuation still attractive, there may be more room for the stock to rise higher. Its forward P/E multiple is just under 10.

Verizon's payout ratio is less than 70%, and its free cash over the past four quarters has totaled nearly $20 billion, which is comfortably more than the $11.5 billion it pays in dividends over the course of a full year.

The company anticipates that its adjusted earnings will rise steadily this year, between 5% to 6%. Verizon has been demonstrating strong growth of late, with its postpaid phone net additions being the highest they've been in years. The business is solid, and it's another example of an undervalued and underrated dividend stock to buy right now.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie. The Motley Fool recommends CVS Health and Verizon Communications. The Motley Fool has a disclosure policy.