Income-seeking investors have to make an important choice when shopping for stocks to buy. Shares of companies that are likely to raise their dividend payouts at a rapid pace tend to offer low yields upfront. On the other hand, stocks generally don't offer high yields unless investors feel there's a low chance the underlying business will raise earnings and in turn their payouts.
Right now, Pfizer (PFE 0.73%) and Altria Group (MO 0.75%) stand out among dividend stocks. Both have raised their payouts every year for over a decade. Plus, they offer yields above 6% at the moment, and there's a good chance they'll keep raising their payouts over the long run.
Pfizer
Shares of Pfizer have fallen about 36% over the past 12 months largely because sales of its COVID-19 products fell much faster than expected. Sales of Comirnaty, its COVID-19 vaccine, fell by $26.6 billion last year. Sales of Paxlovid, its antiviral treatment, fell by $17.7 billion in 2023.
Pfizer raised its dividend payout for 15 consecutive years, but it seems the market can't get over the massive drop in sales last year. At its beaten-down price, shares of the pharmaceutical giant offer investors a 6.3% dividend yield.
Raising its payout in the years to come probably won't be an issue for Pfizer. If we ignore contributions from COVID-19 products, total sales grew 7% last year.
This year, Pfizer expects earnings to land in a range between $2.05 and $2.25 per share. This is more than enough to support a dividend payout currently set at an annualized $1.68 per share, and raise that payout significantly.
In order to grow their dividend payouts over time, pharmaceutical companies must constantly replenish their lineups of patent-protected medicines. Pfizer invested some of its COVID-19 windfall into the development of new drugs that could allow it to keep growing. In 2023, the company earned approvals from the Food and Drug Administration (FDA) for nine new drugs.
At recent prices, you can scoop up Pfizer shares for just 12.5 times the midpoint of management's earnings expectation for 2024. This is a great price to pay for an established business likely to grow annual earnings by a mid-single-digit percentage for the next several years. Adding some shares to an income-generating portfolio looks like a smart move right now.
Altria Group
Shares of Altria Group, the company that sells Marlboro cigarettes in the U.S. market, offer an eye-popping 9.3% dividend yield. The company has raised its payout 58 times in the last 54 years. The stock has fallen about 13% over the last 11 months because investors are worried about a faster-than-usual decline in combustible cigarette sales.
The amount of nicotine consumed in the U.S. isn't shrinking, but consumers are shifting away from combustible cigarettes at an alarming rate. Altria shipped 76.3 billion cigarettes in 2023, which was 9.9% less than it sold a year earlier.
Despite the steeper-than-usual decline in combustible cigarettes, Altria reported adjusted earnings that grew 2.3% last year to $4.95 per share. That's more than it needs to cover a dividend payout currently set at $3.92 annually.
The FDA banned flavored vaporizers in 2020, and the illicit market is a major challenge for Altria Group. This probably isn't an issue the tobacco industry can't overcome with help from the government. Late last year, the FDA and Customs and Border Protection teamed up to seize 41 shipments of unauthorized e-cigarette products. So far this year, it's issued warning letters to 19 online retailers and 61 brick-and-mortar retailers for selling unauthorized e-cigarette products.
Increasing enforcement of the FDA's flavored e-cigarette ban could draw heaps of customers to Altria Group's new e-vapor product. Last year, it acquired NJOY, which markets the only pod-based e-cigarette system authorized for sale by the FDA. Adding some shares to a portfolio now could produce heaps of passive income over the long run.
