Ownership has its privileges -- at least with many stocks. More than 5,000 stocks that trade on U.S. exchanges return a portion of their profits to shareholders as dividends. Not all of them are great picks to buy right now, but some are.
Three Fool.com contributors were asked to recommend some no-brainer dividend stocks to buy in September. They selected healthcare companies AbbVie (NYSE: ABBV) , Merck (NYSE: MRK) , and Pfizer (NYSE: PFE) . Here's why.
Dividend royalty, with solid growth prospects
Keith Speights (AbbVie) : You can count the number of Dividend Kings that operate in the healthcare sector on one hand and have a thumb left over. AbbVie is one of the four. The big pharmaceutical company has increased its dividend annually for 52 consecutive years.
Although some Dividend Kings offer paltry dividend yields, that's not the case with AbbVie. The drugmaker's forward dividend yield is 3.2%. This yield is lower than it's been in the past for a good reason: AbbVie's share price has jumped over 20% this year.
This strong share price performance reflects AbbVie's solid growth prospects. Sure, sales for Humira continue to sink due to biosimilar competition. However, AbbVie has prepared well for the loss of patent exclusivity of its top-selling drug.
The two successors to Humira, Rinvoq and Skyrizi, are on pace to together surpass Humira's peak annual sales within the next few years. AbbVie's 2020 acquisition of Allergan added key growth drivers, including migraine therapies Qulipta and Ubrelvy and antipsychotic medication Vraylar to its lineup.
In addition, AbbVie's pipeline features over 90 programs in clinical development. The list includes over 50 programs that are in mid- or late-stage testing.
AbbVie expects to deliver high-single-digit growth through the end of the decade. With this level of growth, combined with its steadily increasing dividend, the stock should reward investors with attractive total returns for a long time to come.
Look beyond the fast-approaching patent cliff
Prosper Junior Bakiny (Merck): Though it stands as one of the largest pharmaceutical companies in the world with a vast portfolio of medicines -- not to mention one of the leading animal health businesses -- Merck's name is strongly associated with its cancer medicine, Keytruda. The company's crown jewel is the best-selling drug in the world, a title it officially took last year.
However, Keytruda will be off-patent in 2028. Some investors worry this patent cliff will threaten Merck's business and dividend.
And what a business it is. Merck's revenue and earnings continue to grow at a good clip. In the second quarter, Merck's top line increased 7% year over year -- a decent performance for a pharma giant -- to $16.1 billion. Its earnings per share of $2.14 was much better than the $2.35 net loss per share reported in the year-ago period. Last year's net loss was related to acquisition costs at the time.
Merck's dividend has increased by 75% in the past decade; it offers a forward yield of 2.64%. Fortunately, Merck should survive Keytruda's loss of patent exclusivity. It is developing a subcutaneous version of the medicine that looks destined to be a blockbuster and take over many of Keytruda's indications. Research company Evaluate Pharma estimates that this new version of Keytruda will generate as much as $8 billion in revenue by 2030.
The company has several other products that are performing well and a rich pipeline of medicines, some of which should earn approval in the next few years. Merck offers products people need regardless of economic conditions, has an impressive track record, and can develop brand-new medicines through innovations. The company is an excellent income stock to buy and hold.
Pfizer is a high-yielding stock with a lot of upsides
David Jagielski (Pfizer): One dividend stock I wouldn't hesitate to buy right now is Pfizer. At around 6%, it is paying investors a high yield that's more than four times the S&P 500 average of 1.3%. The company has also increased its payout steadily since 2010. While those increases haven't been large, Pfizer's dividend has still climbed 17% in five years.
Investors may be concerned about the dividend due to the challenges that lay ahead for Pfizer. The company looks to transition to new growth opportunities as it faces the loss of patent protection on multiple key drugs. COVID-related revenue has also been diminishing. But thanks to the company's pursuit of acquisitions, including its $43 billion purchase of oncology company Seagen last year, Pfizer may be in better shape than investors fear.
It has been investing in the launch of new products and expects that by the end of the decade, it may not only offset the decline in revenue due to patent losses, but the net effect should see it adding to its top line. Pfizer projects it will lose $18 billion in revenue by the end of the decade due to generics and rising competition, but it aims to add $25 billion by then through acquisitions and new products.
There hasn't been much confidence in Pfizer's stock from investors (it's down more than 20% in the past 12 months), but if you're willing to be patient with the company as it navigates what's sure to be a challenging period in the years ahead, the payoff could be significant. Not only could you lock in a great yield right now, but as the pharmaceutical company comes out with new products, the stock price may start to rally.
Should you invest $1,000 in AbbVie right now?
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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in AbbVie and Pfizer. Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Pfizer. The Motley Fool has a disclosure policy .
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