Finding dividend stocks worth holding onto for good isn't an easy task. Investors shouldn't necessarily rely on a company's current dividend yield to make that decision. Recent history has shown that a high yield is only as secure as the business that supports it. Medical Properties Trust, for example, had one in the mid-teens only to cut its dividend, much to investors' grief.
Income-seeking investors don't want to see that happen. The best way to ensure that it won't happen is to buy shares of dividend-paying companies whose businesses are robust and likely to remain so for a long time to come. Two examples are Novartis (NVS -1.64%) and Microsoft (MSFT 1.82%).
1. Novartis
Novartis is in the healthcare business, which is always in high demand. The drugs it sells are critical to patients' well-being, so neither the patients nor the physicians who prescribe these medicines are particularly inclined to stop doing so regardless of economic conditions. Novartis' best-selling drugs include heart failure therapy Entresto, immunosuppressant Cosentyx, cancer medicine Kisqali, and multiple sclerosis treatment Kesimpta.
The company's revenue and earnings growth haven't been great in the past decade, but ongoing developments could change things.
NVS Revenue (Quarterly) data by YCharts.
Novartis is currently spinning off its generic drug unit Sandoz in a move that should lift top-line growth since the generic drug market has been sluggish for a while now. Generics do not benefit from the same patent exclusivity that brand-new clinical compounds enjoy for a period of time. That's why the competition among generic drugs is fierce, and companies that develop generics have no pricing power.
Separating this part of its business will allow Novartis to focus better on its more lucrative innovative-medicines platform. And on that front, things look promising. The company has over 100 programs in its pipeline. Being able to innovate is important for pharmaceutical companies to remain successful over the long run, and based on its current pipeline and history, Novartis is capable of doing so.
Novartis' dividend profile also looks attractive. It has been growing its payouts every year for 26 years straight. The stock currently offers a competitive yield of 3.54%, along with a cash-payout ratio of about 57%, which is reasonable. Novartis should be able to maintain this momentum for a while thanks to the drugmaker's solid business. Income-seekers can't go wrong with this stock.
2. Microsoft
Microsoft has become entrenched in the lives of millions of individuals and businesses. The company is perhaps best known for its computer operating systems, a market where it is the undisputed leader. People rely on the company's suite of productivity tools such as Word, Excel, Teams, etc. That's all well and good, but the tech sector changes fast, and it's essential to stay ahead of the curb.
That shouldn't be a problem for Microsoft since it has built a culture centered around innovation. The company has proven that by successfully going after lucrative opportunities in the industry. One of them is cloud computing. Microsoft, through Azure, has established itself as a leader with the second-largest market share.
The cloud market will only grow from here as it provides significant benefits for businesses compared to traditional computing solutions, from cost savings to greater efficiency and flexibility, etc. Microsoft is also making a bet on artificial intelligence (AI). It invested in OpenAI, the company behind ChatGPT, long before the now-famous AI chatbot became a major worldwide sensation. The generative AI market is another one that's ripe for growth. Microsoft could also benefit from it.
The broader point about the company is that it has the personnel and funds necessary to identify and pursue exciting new growth avenues. The company's underlying business is also rock solid, as evidenced by its exceedingly rare AAA rating from Standard & Poor. So, even in a rapidly evolving technology industry, Microsoft should remain one of the most prominent players for a long time.
The company's dividend is also attractive. In the past decade, along with other key metrics, it has grown at a rapid clip.
MSFT Revenue (Quarterly) data by YCharts.
Microsoft currently offers a yield of 0.82%. That's not high, but the company won't suspend or cut its dividend anytime soon. And with a cash-payout ratio of about 33%, there is ample room for more increases.
