These reliable dividend payers are no-brainer buys right now.
The past year has seen substantial gains for most stocks, with the S&P 500 index rising about 24%. While a rising market is excellent for your existing portfolio, finding new investment opportunities has become more challenging. However, with a focus on the right sectors, you can still uncover compelling options.
While artificial intelligence-related businesses are capturing most investors’ attention, the healthcare sector remains full of underappreciated stocks. This is an excellent time for income-seeking investors to consider the often-overlooked pharmaceutical industry. Notably, shares of Pfizer (PFE 0.91%) and AbbVie (ABBV -1.05%) offer dividend yields significantly above the market average and have a strong potential for continued dividend growth.
These two dividend payers offer an average yield of 4.8% at recent prices. Therefore, a $1,000 investment split between them would generate about $48 in dividend income over the next 12 months, with the potential for even higher returns by the time you retire.
Pfizer
Pfizer has been increasing its dividend annually since 2009, although its stock price has dropped by about 23% over the past 12 months. This recent decline means the stock now offers an impressive 6% yield.
While sales of Pfizer’s COVID-19-related products have significantly decreased, they currently account for only about 16% of total revenue. Excluding COVID-19 products and the negative impact of a stronger dollar, Pfizer reported an 11% year-over-year increase in first-quarter sales.
Pfizer has wisely reinvested its COVID-19 profits into developing new drug candidates and expanding its existing product lineup. In 2023, the FDA approved nine new drugs from Pfizer, and the company also received indication-expanding approvals for several existing drugs, such as Padcev, now approved for newly diagnosed bladder cancer patients.
Despite the inherent unpredictability of individual drug sales, Pfizer’s large and diverse product portfolio positions it to deliver steadily rising earnings in the years ahead.
AbbVie
AbbVie, which spun out from Abbott Laboratories in 2013, has continued its parent company’s decades-long streak of raising dividends. At recent prices, AbbVie’s stock offers a solid 3.6% dividend yield.
Although AbbVie’s initial yield is lower than Pfizer’s, its track record of increasing dividends suggests it could generate more passive income over the long term. AbbVie has raised its dividend payout by 45% over the past five years.
The company’s recent dividend increases have been modest due to the loss of U.S. patent protection for its lead drug, Humira, last year. In the first quarter, Humira sales accounted for just 14% of total revenue.
Strong sales contributions from newer drugs, like Skyrizi and Rinvoq, indicate AbbVie is well-positioned to replace Humira’s revenue and accelerate dividend growth. Skyrizi, used for psoriasis and inflammatory bowel diseases, saw first-quarter sales jump 48% year over year to an annualized $8 billion. Rinvoq, a daily tablet, experienced a 59% year-over-year sales increase to an annualized $4.4 billion.
AbbVie expects the combined annual sales of Skyrizi and Rinvoq to more than double, surpassing $27 billion by 2027. Additionally, the company’s migraine treatments, Ubrelvy and Quilipta, achieved an annualized $1.3 billion in first-quarter sales, with management projecting peak sales to exceed $3 billion.
Despite the decline in Humira sales, AbbVie anticipates single-digit percentage growth in total sales through 2029. This well-managed drugmaker is likely to raise its dividend payout in line with sales growth, making its stock a great buy now to enhance your passive income stream.