Buy, hold, earn 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 paying attractive dividends.
Three Motley Fool contributors believe they can help on that front. Here’s why they made their decision AbbVie (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
Prosper Junior Bakiny (AbbVie): Many dividend investors fear that there will be lower distributions. In a worst-case scenario, companies may suspend their dividend programs entirely. While there are no certainties in life or in the stock market, investors can be as confident as possible that AbbVie is unlikely to cut its dividend. That’s not just because management has repeatedly and explicitly stated 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 this goal with concrete steps. Then it separated from Abbott LaboratoriesAbbVie increased its distributions by 287.5%. Although AbbVie recently lost patent protection for by far its most important product, the immunology drug Humira, it has continued to increase its dividend. Additionally, AbbVie’s underlying business remains solid even without Humira driving revenue growth.
Drugs like Skyrizi and Rinvoq – two immunology products – AbbVie’s Botox franchise, migraine treatment Qulipta, schizophrenia therapy Vraylar and more will enable the company to return to sales growth next year. Additionally, AbbVie had a deep pipeline that should allow the company to regularly change and improve its product mix. AbbVie is a dividend king: The company has increased its payouts for 52 consecutive years. The forward yield 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 on to for a while can safely add the drugmaker’s stock to their portfolio.
Eli Lilly offers investors the best of both worlds
David Jagielski (Eli Lilly): When thinking about which dividend stocks to buy for your portfolio, you usually start by filtering out investments that offer only modest returns, such as the stock that Eli Lilly pays – 0.7%. But it would be a mistake to overlook this leading healthcare giant, as it can be a fantastic dividend stock to hold for the long term.
Even if the returns look disappointing, that’s only because Eli Lilly is such a massive growth stock. In five years, the stock’s value has increased by more than 500%. But the company’s dividend also doubled during this period. Eli Lilly has generously rewarded shareholders with some big interest rate hikes. The quarterly dividend of $1.30 currently paid is 15% higher than the $1.13 paid to shareholders a year ago. A decade ago, the company’s quarterly dividend was just $0.49.
The most important thing investors should 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 peak times, they can collectively generate more than $50 billion in annual revenue for the company. While Eli Lilly will reinvest much of its profits back into the company, the company will likely continue to reward shareholders.
This means that what seems like a modest dividend income at the moment can quickly increase over the years. Additionally, you can also benefit by holding onto the stock and benefiting from its valuation, which may continue to rise as Mounjaro and Zepbound bring in billions of dollars in revenue for the company. When you invest in Eli Lilly, you can get the best of both worlds – a fast-growing company and a dividend.
High returns, low valuation
Keith Speights (Pfizer): Pfizer should be attractive to both income and value investors. It could also be attractive to growth investors.
The major drugmaker’s dividend yield is over 6.6%. Pfizer has increased its dividend every year since 2010, and I expect that trend to continue. CFO Dave Denton told analysts in January that increasing the dividend was the company’s top capital allocation priority.
Pfizer shares have fallen sharply in recent years, largely due to the rapid decline in COVID-19 product sales. However, I believe the sell-off is overdone as shares are now trading at a forward price-to-earnings ratio of under 11.9.
In my opinion, 2024 could be the low point for COVID-19 vaccine sales. Most people who wanted a vaccine last year will likely get another one this year. Pfizer hopes to bring a combination COVID flu vaccine to market in 2025, which could trigger a surge in sales for its COVID-19 franchise.
However, the company still has another major hurdle to overcome as several blockbuster drugs lose their patent exclusivity in the next few years. The good news is that Pfizer’s new products and newly approved indications for existing products should generate enough additional revenue to offset the impact of declining sales of products whose patents are expiring.
A recovery in COVID-19 sales and an offset to the looming patent cliff aren’t enough to make Pfizer’s growth story compelling. However, this could be the case with the pharmaceutical giant’s business development deals. Pfizer expects acquisitions completed in recent years and some pending to increase revenue by about $25 billion per year through 2030.
Should you invest $1,000 in AbbVie now?
Before buying AbbVie stock, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and AbbVie wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $506,291!*
Stock Advisor provides investors with an easy-to-understand roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns from April 22, 2024
David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions at AbbVie and Pfizer. Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Abbott Laboratories and Pfizer. The Motley Fool has a disclosure policy.
“3 Dividend Stocks to Buy and Hold for the Next Decade” was originally published by The Motley Fool