Income investors have an important decision to make when purchasing stocks. Stocks of companies that are expected to increase their dividend payouts quickly tend to offer low yields. On the other hand, stocks generally do not offer high returns unless investors believe that the likelihood that the underlying company will grow its profits and therefore its distributions is low.
At the moment, Pfizer (NYSE:PFE) And Altria Group (NYSE:MO) stand out among dividend stocks. Both have increased their payouts every year for over a decade. Plus, they currently offer yields over 6% and there’s a good chance they’ll continue to increase their distributions in the long term.
Pfizer
Shares of Pfizer have fallen about 36% over the past 12 months, largely because sales of its COVID-19 products fell much faster than expected. Sales of Comirnaty, its COVID-19 vaccine, fell by $26.6 billion last year. Sales of Paxlovid, its antiviral drug, fell by $17.7 billion in 2023.
Pfizer has increased its dividend payout for 15 years in a row, but it seems the market can’t handle last year’s massive drop in sales. At their discounted price, the pharmaceutical giant’s shares offer investors a dividend yield of 6.3%.
Increasing the payout in the coming years should not be a problem for Pfizer. If we ignore contributions from COVID-19 products, total sales increased 7% last year.
This year, Pfizer expects earnings in a range of $2.05 to $2.25 per share. This is more than enough to support a dividend payout, currently set at $1.68 per share annually, and to increase that payout significantly.
In order to increase their dividend payouts over time, pharmaceutical companies must continually replenish their supply of patent-protected drugs. Pfizer invested some of its revenue from the COVID-19 crisis into developing new drugs that could allow it to grow further. In 2023, the company received Food and Drug Administration (FDA) approval for nine new drugs.
At current prices, you can buy Pfizer shares for just 12.5 times the median of management’s 2024 earnings expectations. This is a great price for an established company that is likely to grow its annual profits by a mid-single-digit percentage over the next several years. Adding some stocks to an income-generating portfolio seems like a smart move right now.
Altria Group
Shares of Altria Group, the company that sells Marlboro cigarettes in the US market, offer a stunning dividend yield of 9.3%. The company has increased its payout 58 times over the past 54 years. The stock has fallen about 13% in the past 11 months as investors fear a faster-than-usual decline in sales of combustible cigarettes.
The amount of nicotine consumed in the U.S. isn’t decreasing, but consumers are moving away from combustible cigarettes at an alarming rate. Altria shipped 76.3 billion cigarettes in 2023, down 9.9% from the previous year.
Despite the larger-than-normal decline in combustion cigarettes, Altria reported adjusted profit last year that rose 2.3% to $4.95 per share. That’s more than it takes to cover a dividend payout, which is currently set at $3.92 per year.
The FDA banned flavored vaporizers in 2020 and the illegal market poses a major challenge for Altria Group. This is probably not a problem that the tobacco industry cannot solve with government help. Late last year, the FDA and Customs and Border Protection teamed up to seize 41 shipments of unauthorized vaping products. So far this year, 19 online retailers and 61 brick-and-mortar retailers have been warned for selling unauthorized e-cigarette products.
Increasing enforcement of the FDA’s ban on flavored e-cigarettes could attract tons of customers to Altria Group’s new e-vapor product. Last year, the company acquired NJOY, which markets the only pod-based e-cigarette system approved for sale by the FDA. Adding a few stocks to a portfolio could result in a lot of passive income in the long run.
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in Pfizer and recommends it. The Motley Fool has a disclosure policy.
“2 High-Yield Dividend Stocks You Can Buy Now and Hold Forever” was originally published by The Motley Fool