If you're looking for a long-term winner as a retiree, it's hard to beat a stock that not only pays growing dividends, but whose shares are in the bargain bin because of short-term disappointments. Even the highest-quality companies suffer setbacks, which can present a golden opportunity to buy beaten-down shares and watch them rebound. In addition, with the stock having taken a hit, your investment dollars buy more shares, meaning a juicier yield and a bigger income stream for decades -- perhaps even the rest of your life.
Remember that no stock is without risk, and there are no guarantees. But if you have some patience and don't mind a little risk, these three companies have a long history of solid performance and could make great choices for a retirement portfolio.
Bristol-Myers Squibb: management flubbed it, but the stock will be back
Blame Bristol-Myers Squibb (BMY -0.49%) for being overly ambitious. The Big Pharma company motored to a 17-year high in July, only to take a sharp plunge in August. The stock is now down about 25%, meaning Bristol-Myers' dividend yield is a more attractive 2.7%. At the pre-plunge price, shares were yielding only 2%.
But what caused the drop? Chalk it up to an unexpected clinical trial failure for the company's PD-L1 inhibitor, Opdivo, the world's best-selling cancer drug. In a first-line non-small-cell lung cancer (NSCLC) trial, Opdivo failed to outperform conventional chemotherapy. Since Merck & Co.'s PD-L1 inhibitor, Keytruda, succeeded in a somewhat similar trial, Opdivo's failure shocked the market. In fact, the biotech twittersphere went nuts. "The failure is a MAJOR SURPRISE -- possibly the biggest clinical surprise of my career," wrote Mark Schoenbaum of research firm Evercore ISI.
Actually, it wasn't so much a surprise as an overreach. What the headlines missed was that the trials were designed differently. Bristol-Myers' trial included a broad group of patients, while Merck played it safe by including only patients whose tumors expressed a lot of PD-L1, making them more likely to benefit from PD-L1-inhibiting drugs.
Short-term, management's decision really hurt this stock, but the market appears to have punished Bristol-Myers enough. And it should be remembered that Opdivo has been outselling Keytruda 2-to-1, thanks in part to a management team that's often gone for the wider market approval in its clinical trials. For instance, in second-line NSCLC treatment, Opdivo is approved for all patients, while Keytruda is approved only for those with high PD-L1 levels.
Bristol-Myers will have another shot at the first-line NSCLC market with a late-stage study testing Opdivo and another drug called Yervoy. Results are expected by January 2018.
Meanwhile, this company's growth engine is firing on all cylinders, with last quarter showing 17% growth in revenue to $4.9 billion, compared with the year-ago quarter. U.S. revenues increased an eye-popping 46% to $2.7 billion, as compared with a year ago. Looking forward, the company's top-line forecast is to grow by double digits for the rest of 2016 and by high single digits heading into 2017 and beyond.
At the end of last quarter, Bristol-Meyers had $7.9 billion in cash and marketable securities, giving it financial flexibility. In short, the August sell-off put this pharma in the sweet spot to generate a solid income stream while investors wait for it to recover.
CVS Health Corporation: a prescription for success
CVS Health Corporation's (CVS 1.38%) 1.8% dividend may not seem like much at first, but CVS offers great dividend growth. The company has raised its dividend for 13 straight years. In fact, management raised the dividend 21% just last year and has boosted it 750% over the past 10 years. In addition, the company's payout ratio is still a low 33%, meaning there's plenty of room to keep raising the dividend.
Companies that are able to aggressively grow their dividends usually do so because earnings are accelerating. In the second quarter, CVS's adjusted EPS increased 8.3% year over year. Combining all of its sales data, net revenues were up 17.6% to a record $43.7 billion last quarter, compared with the year-ago quarter.
While most people think of CVS as a drugstore operator, it's also the country's second-largest pharmacy benefit manager (PBM), with more than 80 million members. The larger you are in the PBM business, the better deals you can negotiate on drug prices, which clearly is important, with drug pricing a growing concern in the U.S.
In terms of its retail pharmacy business, revenue increased $2.8 billion to $20 billion, or 16% year-over-year, in the most recent quarter, thanks to the addition of long-term care pharmacy operations from its acquisition of Omnicare, Inc, as well as the addition of clinics and pharmacies from its deal with Target Corporation. Add in the company's 1,100 Minute Clinic urgent-care facilities, with plans to open another 400 in the next few years, and this stock looks poised for fast growth in the coming decades.
Despite turning in solid financial results in the first and second quarters of 2016, CVS has seen its stock declined 6% since the beginning of the year. Add it all up, and this currently lagging stock could be just what the doctor ordered to revitalize your retirement portfolio.
Abbott Labs: Grace Groner shows the way
If you're looking for a great stock that's paid increasing dividends decade after decade, look no further than Abbott Labs (ABT -0.94%). Having spun off its biotech department back in 2013 into AbbVie, the parent company has paid increasing dividends for an amazing 44 years. The global healthcare products company now offers a shareholder payout of 2.5%, after raising its dividend 7% in the past year.
Abbott's stock price has dropped about 6% over the past 12 months, but the long-term trajectory of this company is not only intact but also likely to be reignited by recent acquisitions. In fact, last quarter's results were a standout, with every single segment delivering mid- to high-single-digit operational growth. Point-of-care diagnostics saw an 11.5% jump, emerging-market pharmaceuticals grew 15.9%, and vascular medical devices grew 8.9%. In addition, with its $25 billion acquisition of St. Jude Medical, which should close before the end of the year, investors should see continued growth far into the future.
One story any retiree can appreciate is that of Grace Groner, who was a secretary at Abbott Labs 80 years ago. Groner bought three shares of Abbott Laboratories in 1935 for $60 each. She held on to the stock and reinvested her dividends in more shares, while Abbott split dozens of times and grew into a healthcare behemoth.
By 2010, she owned more than 100,000 shares valued at $7 million.
I can't tell you where this company will be in another 80 years, but taking into account its highly diversified revenue stream -- which is a stabilizing factor for any company -- as well as its rich and stable history and an above-average dividend yield, it's a good option for retirement investors.
Buy on the dip and let it rip
One of my favorite rules of thumb for successful stock investing is to buy greatness on sale. All three of these companies offer the kind of growth potential, safety, and expanding dividends that create long-term champs. And best of all, they're in the bargain bin.