Top Dividend Stocks to Buy: AbbVie, Merck, and Pfizer Insights

Author: Dylan Bailey Updated: 09-08-2024 08:20 AM

Investing in Dividend Growth: What You Need to Know

Ownership has its privileges when it comes to dividend stocks. Thousands of stocks on U.S. exchanges offer a percentage of their profits back to shareholders in the form of dividends. While not every dividend stock is a smart choice, some stand out as excellent investments right now.

Three contributors highlight notable picks among dividend stocks. They suggest focusing on healthcare companies: AbbVie, Merck, and Pfizer. Let’s delve into why these stocks are worth your attention.

AbbVie: A Dividend King with Robust Growth

AbbVie is one of a rare breed of companies that maintain a reputation as Dividend Kings in the healthcare sector. It has impressively raised its dividend for 52 consecutive years. Currently, AbbVie boasts a forward dividend yield of 3.2%, reflecting both its strong performance and the fact that its stock price has surged more than 20% this year.

AbbVie’s growth story continues despite pressures from the competition for its flagship drug, Humira. The company strategically positioned itself with Rinvoq and Skyrizi, successors that are expected to generate impressive sales in the coming years. Moreover, AbbVie’s acquisition of Allergan brought in additional growth drivers with medications targeting migraines, mental health, and more.

The company's pipeline is robust, featuring over 90 clinical programs, including more than 50 in late-stage testing. With expectations of high-single-digit growth continuing through the decade, AbbVie looks poised to reward investors with solid returns.

Merck: Navigating Challenges with Innovation

Merck is synonymous with strength in the pharmaceutical industry, known especially for Keytruda, its blockbuster cancer medication. However, investors are concerned about the impending patent expiration for Keytruda in 2028. Yet, Merck's business remains robust, with a notable revenue increase of 7% year-over-year last quarter, totaling $16.1 billion.

In the past decade, Merck has consistently raised its dividend by 75%, currently offering a forward yield of 2.64%. The company is focusing on innovations to mitigate the potential impact of losing patent coverage. They are working on a subcutaneous version of Keytruda, which is anticipated to generate significant revenue and expand its market reach.

Merck's diversified portfolio and strong free cash flow enable it to continue investing in research and development, creating a favorable outlook for long-term growth.

Pfizer: High Yield with Promising Future

Pfizer is another compelling dividend stock, currently offering an attractive yield around 6%, vastly exceeding the S&P 500 average. Despite challenges from expiring patents and decreasing COVID-related revenues, Pfizer has a solid plan in place to foster new growth avenues.

The company's strategic acquisitions, including the recent purchase of oncology firm Seagen, enhance its product pipeline amid declining revenues. Pfizer anticipates a potential loss of $18 billion due to patent expirations but expects to counter that with an additional $25 billion from new offerings.

Investors wary of Pfizer’s stock performance may find that patience could pay off handsomely as the company launches new products and revives its growth trajectory.

Conclusion: Weighing Your Investment Options

As you consider stock purchases, AbbVie, Merck, and Pfizer emerge as solid candidates for investors focused on dividend income paired with growth potential. Each of these companies possesses unique strengths, robust pipelines, and a historical commitment to returning value to shareholders, setting them apart in a competitive marketplace.

Frequently Asked Questions

What are Dividend Kings?

Dividend Kings are companies that have consistently raised their dividends for 50 or more consecutive years, indicating strong financial health and commitment to shareholder returns.

Why is AbbVie considered a strong investment?

AbbVie boasts a lengthy history of dividend increases, a strong growth pipeline, and success with its successor drugs to Humira, making it a desirable choice for investors.

How is Merck managing potential challenges from patent expirations?

Merck is innovating by developing new versions of existing drugs and maintaining a diversified product portfolio, which should help mitigate revenue loss once patents expire.

What sets Pfizer apart as a dividend stock?

Pfizer offers a high dividend yield and has a credible strategy for diversifying its revenue streams to offset losses from expiring patents while still investing in new products.

Are these stocks suitable for long-term investment?

Yes, given their solid track records, growth prospects, and consistent dividend payments, AbbVie, Merck, and Pfizer are suitable for long-term investment strategies focused on stability and income.

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