Buy, hold and bring in a solid income. That sounds like a pretty good investment strategy. You just need to find the right stocks that are worth holding for the long term and that pay attractive dividends.
Three Motley Fool contributors think they can help on that front. This is why they chose AbVie (NYSE: ABBV), Eli Lilly (NYSE: LLY)And Pfizer (NYSE:PFE) as dividend stocks to buy and hold for the next decade.
An unstoppable passive income machine
Prosperity Junior Bakiny (AbbVie): Many dividend investors fear reduced payouts. In the worst case, companies could suspend their dividend programs altogether. While there are no certainties in life – or in the stock markets – investors can be as certain as possible that AbbVie is unlikely to resort to dividend cuts. That's not just because management has repeatedly stated explicitly that returning money to shareholders through dividend increases is one of the company's priorities.
CEOs make empty promises all the time. However, AbbVie has demonstrated its commitment to that goal with tangible steps. Since it split from Abbott LaboratoriesAbbVie has increased its payouts by 287.5%. Despite recently losing patent protection for what was by far its most important product, the immunology drug Humira, it has continued to increase its dividend. Moreover, AbbVie's underlying business remains solid even without Humira driving revenue growth.
Drugs such as Skyrizi and Rinvoq – two immunology products – AbbVie's Botox franchise, migraine treatments Qulipta, schizophrenia therapy Vraylar and more, will allow the company to return to sales growth next year. In addition, AbbVie had a deep pipeline that should allow the company to regularly adjust and improve its product mix. AbbVie is one Dividend King: It has increased its payouts for 52 consecutive years. The term return of 3.69% is well above average.
The company's cash payout is just under 48%, a reasonable number that leaves plenty of room for further dividend increases. Investors looking for income stocks to hold for a while can safely add the drugmaker's stock to their portfolios.
Eli Lilly offers investors the best of both worlds
David Jagielski (Eli Lilly): Normally, when thinking about which dividend stocks to buy for your portfolio, you can start by filtering out investments that offer only modest returns, like the yield Eli Lilly pays: 0.7%. But it would be a mistake to overlook this top healthcare giant, as it could be a fantastic dividend stock in the long term.
While the yield may seem disappointing, that's only because of what a tremendous growth stock Eli Lilly has been. In five years, the value of the share has increased by more than 500%. But the company's dividend has also doubled during that period. Eli Lilly has generously rewarded shareholders with some big interest rate hikes. The $1.30 quarterly dividend it currently pays is 15% higher than the $1.13 it paid out to shareholders a year ago. Ten years ago, the company's quarterly dividend was just $0.49.
The most important thing investors need to focus on here is the long term. And in the long term, Eli Lilly has fantastic growth prospects thanks to its diabetes and weight loss drugs Mounjaro and Zepbound. At their combined peaks, they can generate more than $50 billion in annual revenue for the company. While Eli Lilly will invest a large portion of its profits back into the company, it will also likely continue to reward shareholders.
That means what seems like a modest dividend income now could quickly increase over the years. Moreover, you can also benefit by holding on to the stock and taking advantage of its valuation, which may continue to rise as Mounjaro and Zepbound rake in billions in revenue for the company. By investing in Eli Lilly, you can get the best of both worlds: a fast-growing company and dividends.
High return, low valuation
Keith Speights (Pfizer): Pfizer should be attractive to both income and value investors. It could also appeal to growth investors.
The major drug manufacturer's dividend yield is above 6.6%. Pfizer has increased its dividend every year since 2010, and I expect this trend to continue. CFO Dave Denton told analysts in January that increasing the dividend is the company's first priority for allocating capital.
Pfizer shares have fallen in recent years, mainly due to rapidly declining sales of COVID-19 products. However, I think the sell-off is overdone as shares are now trading at a price-to-earnings ratio of less than 11.9.
In my opinion, 2024 could be the bottom for COVID-19 vaccine sales. Most people who wanted a vaccine last year will likely get a new vaccine this year. Pfizer hopes to launch a combination COVID flu vaccine in 2025 that could spark a sales recovery for its COVID-19 franchise.
However, the company still has a major hurdle to overcome, with several blockbusters set to lose their patent exclusivity in the coming years. The good news is that Pfizer's new products and the newly approved indications for existing products should generate enough additional revenue to offset the impact of declining sales of the off-patent products.
A COVID-19 sales recovery and offsetting the looming patent gap aren't enough to make Pfizer's growth story compelling. However, the pharmaceutical giant's business development deals could be. Pfizer expects acquisitions completed in recent years and some yet to be made will increase sales by about $25 billion per year by 2030.
Should You Invest $1,000 in AbbVie Now?
Consider the following before buying shares in AbbVie:
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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in AbbVie and Pfizer. Prosperity Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories and Pfizer. The Motley Fool has one disclosure policy.
3 dividend stocks to buy and hold for the next decade was originally published by The Motley Fool
