Dividend stocks are a great source of passive income. For those who opt to reinvest their dividends, the move can substantially boost returns over the long run. And while top income stocks often attract plenty of attention from eager investors who bid up their share prices, it's possible to find some that have been punished by the market -- perhaps because of company-specific issues -- that are still worth buying.
Let's consider two notable examples today: Gilead Sciences (GILD 0.23%) and eBay (EBAY 1.32%). Here's the rundown on these two solid but beaten-down, dividend-paying companies.
1. Gilead Sciences
Gilead Sciences' financial results have been impressive over the past few years as the biotech dealt with fluctuating revenue from its COVID-19 therapy, Veklury. In some sense, Veklury has been a lifesaver for Gilead Sciences. It was one of the first therapies authorized to treat COVID-19, and even with new variants of the virus, it remains in use. It helped the drugmaker's revenue stay afloat while sales of other products dropped due to the outbreak.
Still, with the pandemic slowly fading, it has become a deadweight on Gilead's top-line growth. At the same time, the company encountered some clinical and regulatory problems that dragged down its share price. Still, there is a lot to like about Gilead Sciences' business, especially for investors looking for a steady and reliable dividend payer.
Its HIV franchise remains the market leader. In the third quarter, the company's HIV medicine, Biktarvy, had a 47% share of the market in the U.S., up 2% year over year. That means nearly half of HIV patients taking medication are on Biktarvy. Gilead Sciences' oncology portfolio is also growing in prominence. Furthermore, the drugmaker's pipeline features 61 programs, including 19 -- or nearly one-third of that total -- in phase 3 studies.
What about the dividend? Gilead Sciences has not interrupted its payouts in the past five years despite the pandemic and all the economic problems it brought. In fact, the company has hiked its payouts by about 19% since 2019. The stock currently offers a 3.9% yield, along with a cash payout ratio of roughly 48%.
Gilead's shares are down by 8% in the past 12 months. The biotech's forward price-to-earnings (P/E) ratio is 10.7 compared to an average forward P/E of 22.3 for the S&P 500. At these levels, Gilead Sciences' stock looks like a buy for income seekers willing to stay the course.
2. eBay
E-commerce pioneer eBay has hardly been a growth machine in the past few years, which is partly why it has underperformed the market. In the third quarter, the company's revenue increased by 5% year over year to $2.5 billion. However, there is still a lot to like about the business.
First, eBay is one of the most recognizable names in the e-commerce industry -- and brand name counts for a lot. The company also arguably benefits from the network effect, with merchants and consumers increasingly seeking one another on the platform.
Second, eBay has been implementing a plan to jump-start growth in recent years. The company is doubling down on its "focus categories," or high-value, luxury, and collectible items such as watches, handbags, vintage sneakers, and more. Management reported that this segment grew 7 points faster in the third quarter than the rest of the company's marketplace.
This could help eBay's top-line growth accelerate as it focuses on these items. The company is also improving its advertising business. Thanks to its promoted listings ad products (which give sellers the option to promote and boost the visibility of their items), eBay's advertising revenue in the third quarter came in at $366 million, 24% higher than the year-ago period.
Third, eBay generates consistent profits and cash flows. The company's adjusted net income declined slightly -- by 1% year over year to $545 million -- in the third quarter. But it ended Q3 with $777 million in free cash flow, an increase of 22.7% compared to the year-ago period.
Then, there is eBay's dividend. The stock currently yields 2.4%, and the company has increased its payouts by 78.6% in the past five years, currently boasting a cash payout ratio of just 20.7%.
Finally, eBay's forward P/E is 9.5. Sure, it isn't the most dazzling stock in the e-commerce niche. There isn't much that's flashy about the company's business. However, it is a steady, reliable dividend payer that should appeal to low-risk, income-seeking investors.
