When it comes to buying stocks, dividends are icing on the cake. Whatever your personal style of stock trading may be, incorporating dividend-paying companies into your portfolio is one of the most effective strategies to maximize your long-term returns and generate consistent cash as an investor.
However, as ill economic winds from the pandemic have forced many companies to temporarily suspend dividend payments, finding the right dividend stocks to invest in right now is especially tough. While the average dividend stock trading on the S&P 500pays a yield of less than 2%, the stocks on this list each have yields that exceed 4%.
Here's why dividend investors should take a second look at these three top stocks.
Image source: Getty Images.
1. AbbVie
Biopharmaceutical behemoth AbbVie (ABBV -0.44%) pays a dividend that yields just shy of 5% based on current share prices. The company also boasts a title few dividend-paying stocks can lay claim to. AbbVie is a Dividend Aristocrat, having raised its dividend every year for more than 40 years. Assuming the company keeps this track record up, it's just a few years away from being crowned a Dividend King.
AbbVie's stellar portfolio of medicines stretches across a range of disciplines, from immunology to oncology to neuroscience, but its most prominent product is undoubtedly Humira. The household-name immunology drug continues to be the company's top-selling medicine quarter after quarter. Despite the impact of the COVID-19 pandemic and growing competition from biosimilars, Humira still amassed total global net revenues of $14.6 billion during the first three quarters of 2020. Bear in mind, AbbVie's total net revenues across all of its medicines came to $32 billion during that nine-month period, meaning that Humira currently generates about half of all the company's revenues.
Some investors have been concerned about AbbVie's dependency on Humira to grow its top line, particularly in light of the fact that the drug loses exclusivity in the U.S in just two years. The good news is, AbbVie has several other top-selling drugs to fall back on, not to mention a robust pipeline of promising drug candidates to treat conditions including rheumatoid arthritis, Crohn's disease, Parkinson's, and Alzheimer's. Besides Humira, Skyrizi, Rinvoq, and Imbruvica are also on the list of AbbVie's most lucrative drugs. These three products alone brought in total third-quarter net revenues of $435 million, $215 million, and $1.4 billion, respectively, for the period ended Sept. 30, 2020.
And thanks to AbbVie's acquisition of Allergan last year, the company now boasts Botox among its portfolio of products. Botox will continue to have a positive impact on AbbVie's balance sheet in the coming years, and could help to offset a future decline in Humira revenues. Botox generated nearly $1 billion in total net revenues during the third quarter alone. With its portfolio of best-selling medicines, strong pipeline, and oh-so-juicy dividend, AbbVie is one of the top stocks for long-term investors to buy in today's healthcare landscape.
2. Verizon
Verizon (VZ 0.26%) pays an above-average yield of 4.5%. The stock also trades super cheaply ($55) at just 13 times trailing earnings. The 5G giant enjoyed a remarkably good year in 2020 despite the negative impact of the COVID-19 pandemic, and management is expecting continued strong performance in 2021.
Verizon reported consolidated operating revenues to the tune of $128 billion for full-year 2020, representing a slim 3% decrease from its 2019 revenues. And in the final quarter of 2020 ended Dec. 31, the company's consolidated operating revenues were only down 0.2% compared to the year-ago period. Verizon's consumer revenues declined modestly in 2020, but the company grew its wireless retail postpaid net subscribers by 357,000 and added 284,000 postpaid smartphone net subscribers in the fourth quarter. And Verizon's revenues from its media segment grew by a whopping 11% in the final quarter of 2020.
By far, one of Verizon's greatest strengths lies in its solid cash position, which has helped it weather the uncertainty of the current economic climate and reduce its debt throughout the pandemic. In 2020, Verizon grew its operating cash flow by nearly 17% and its free cash flow by 32% compared to 2019. Looking ahead to 2021, management expects the company to increase its top line by 2% or more and that wireless service revenues will jump 3% or higher.
Verizon isn't a high-growth stock, but its attractive dividend and the overall resilience of its business that serves a constant consumer need make it a compelling play for value-driven investors.
3. Realty Income
Realty Income (O -0.81%) is a real estate investment trust (REIT). The promise of impressive dividends is one of the most common reasons investors buy shares of an REIT, and Realty Income certainly doesn't disappoint on that score. Not only does the Dividend Aristocrat pay an impressive yield of 4.6%, but it pays a dividend to investors on a monthly rather than a quarterly basis.
Realty Income's portfolio encompasses well over 6,500 properties around the world, operating in more than 50 different industries. Among Realty Income's most well-known tenants are Walgreens, 7-Eleven, FedEx, Dollar General, and LA Fitness. Since the REIT held its initial public offering (IPO) in 1994, it has delivered a compound average annual total return of more than 15% to investors. And with close to 100 quarters of successive dividend growth under its belt, few stocks can compete with Realty Income's dividend star power.
During the first nine months of 2020, Realty Income's revenues increased nearly 12% from the year-ago period. The fact that Realty Income's leases to many well-known essential-status businesses has helped it to avoid some of the pitfalls other REITs have faced during the pandemic. Realty Income also continued to expand its portfolio during the third quarter, which is a good indicator of its financial strength and ongoing ability to deliver meaningful growth despite the challenging economic climate. Management said, "During the third quarter, we invested $658.6 million, $230 million of which represents investments in the U.K., primarily in high-quality real estate leased to leading operators in essential and resilient industries, like the grocery, home improvement and convenience store industries."
At the time of this writing, Realty Income has total assets of nearly $20 billion, compared to approximately $9 billion in total liabilities. It also maintains strong liquidity, with cash and cash equivalents totaling $724.8 million. Finding a premium stock that pays a monthly dividend and has a rock-solid balance sheet is no easy feat, but Realty Income delivers on all counts.
Rachel Warren has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FedEx. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
As an expert in the field of stock investing, particularly with a focus on dividend-paying companies, I've closely analyzed the provided article on top dividend stocks. My extensive knowledge in finance, stock markets, and investment strategies allows me to provide valuable insights and additional context to the concepts discussed in the article.
-
Dividend Investing Strategy: The article emphasizes the significance of dividends as a crucial aspect of stock investing. Dividends are described as the "icing on the cake," indicating that they serve as additional benefits beyond the potential capital gains. This aligns with the well-established strategy of many long-term investors who seek to include dividend-paying companies in their portfolios for consistent cash flow.
-
Market Conditions and Dividend Challenges: The article acknowledges the challenges posed by the economic impact of the COVID-19 pandemic, which has led many companies to temporarily suspend dividend payments. This context is important for investors to consider when evaluating potential dividend stocks, as economic uncertainties can affect a company's ability to maintain or increase dividend payouts.
-
Dividend Yields: The article compares the average dividend yield of stocks on the S&P 500, which is less than 2%, with the highlighted stocks that have yields exceeding 4%. High dividend yields are often attractive to income-focused investors, and the article suggests that the selected stocks offer more favorable yields compared to the market average.
Now, let's delve into the specifics of the three highlighted dividend stocks:
a. AbbVie (ABBV):
- AbbVie is presented as a biopharmaceutical company with a dividend yield of just shy of 5%.
- Noteworthy is AbbVie's status as a Dividend Aristocrat, having consistently raised its dividend for over 40 years.
- The article discusses AbbVie's diverse portfolio of medicines, highlighting Humira as its top-selling immunology drug, despite the upcoming loss of exclusivity in the U.S.
- Investors are reassured by the company's robust pipeline, including drugs like Skyrizi, Rinvoq, Imbruvica, and the positive impact of the Allergan acquisition, particularly with Botox in its portfolio.
b. Verizon (VZ):
- Verizon is presented as a telecommunications giant with an above-average dividend yield of 4.5%.
- Despite the challenges of the COVID-19 pandemic, Verizon's financial performance is highlighted, including modest declines in consumer revenues but growth in wireless retail subscribers and media segment revenues.
- The company's strong cash position and ability to reduce debt are emphasized, making it an appealing option for value-driven investors.
c. Realty Income (O):
- Realty Income is introduced as a real estate investment trust (REIT) with an impressive monthly dividend yield of 4.6%.
- As a Dividend Aristocrat, Realty Income has a track record of consistent dividend growth and a compound average annual total return of over 15% since its IPO in 1994.
- The article discusses Realty Income's diverse portfolio of over 6,500 properties globally, leased to well-known tenants, and its resilience during the pandemic due to leases with essential-status businesses.
In conclusion, the article provides a comprehensive overview of the dividend investing landscape, highlighting specific stocks with attractive yields and strong fundamentals. Investors seeking income and long-term growth may find valuable insights in the analysis of AbbVie, Verizon, and Realty Income.
