Everyone has heard the saying “don’t judge a book by its cover,” yet income-seeking investors sometimes disregard this wisdom when selecting stocks. Stocks in the S&P 500 index that have at least 25 years of continuous dividend growth are considered Dividend Aristocrats, and the majority of them get more attention than they merit.
Investing in dependable dividend-paying companies is a fantastic strategy to get passive income. However, if you’re set on sticking with the exclusive group of Dividend Aristocrats, choose stocks that have a strong chance of beating the market as a whole.
For five long decades, this pair of connected healthcare enterprises has been paying and increasing its quarterly dividends. Best of all, they could be entering their prime.
1. Laboratories Abbott
A broad healthcare company with interests in nutrition, medical equipment, and diagnostics is Abbott Laboratories (ABT 0.95%). It increased its dividend distribution for the 50th year in a row in December thanks to a variety of companies.
When a nationwide scarcity of specialty formulas resulted from the closing of one of Abbott’s baby food production facilities, the company received a lot of unfavorable press. Investors expecting consistent growth will be relieved to see that the company’s advantages extend beyond the specialty nutrition sector.
Abbott shares now have a 1.7% yield. Although the payment isn’t all that appealing right now, it might increase significantly over the coming years. The FDA approved Abbott’s newest continuous glucose monitoring (CGM) gadget in May.
The small Freestyle Libre 3 is smaller than CGMs from Dexcom’s G7, its closest rival. Abbott’s invention has a head start as well. The G7 has still not received FDA approval, and a U.S. launch won’t likely start until 2023.
Abbott has been able to increase its dividend by 77% over the last five years and might start expanding much faster because of its steady income streams. According to the US Centers for Disease Control, there are now more than 37 million Americans living with diabetes, and Abbott may have the top CGM for the foreseeable future.
In order to protect Abbott Laboratories’ stockholders from the potential loss of market exclusivity for Humira, the most popular anti-inflammatory medicine in the world, AbbVie (ABBV 0.72%) was spun out from Abbott Laboratories in 2013. The business has increased its dividend by an astounding 120% over the previous five years because to the sales of Humira and a growing list of younger medications.
Now that investors are concerned that the company’s bottom line won’t be able to keep rising, AbbVie shares provide a dividend yield of 4%, which is above average. Humira started facing competition from less expensive biosimilar versions in the United States this spring, and sales are expected to decline dramatically in the second half of the year.
32% of total revenue was attributable to Humira sales in the United States, which totaled $4.7 billion in the second quarter. Fortunately, AbbVie has new medications that could more than make up for the losses. The psoriasis injectable Skyrizi and the arthritis medication Rinvoq were both given FDA approval in 2019. This combination is expected to generate combined sales of $7.3 billion this year, and according to AbbVie, those revenues might reach $15 billion by 2025.
U.S. Growth may be challenging to accomplish over the next year or two if Humira sales decline faster than AbbVie’s younger product portfolio. Investors who value consistent dividend increases will be relieved to learn that the business may continue to pay out dividends even if Humira sales start to decline.
Just 43.5% of the free cash flow produced by AbbVie’s activities during the last year was utilized to satisfy its dividend requirement. This company has a decent chance of prospering over the long term thanks to a well-funded dividend program and fresh growth drivers to offset Humira’s inevitable losses.