One way to maximize your potential returns is to invest in stocks that pay dividends. Income-generating investments are particularly valuable right now, with the markets topsy-turvy and showing lots of volatility. And if there's one thing 2020 has taught investors, it's the importance of diversifying and holding some stable investments. Many companies that are still paying dividends are proving to be resilient, solid options for long-term investors.
The two stocks listed here, Pfizer (PFE -0.19%) and Verizon (VZ -0.53%), not only still pay dividends, they've also been increasing them over the years. And in addition to recurring income and stability, they can also provide investors with some exciting growth opportunities in the near future.
1. Pfizer
Healthcare giant Pfizer is an attractive investment for multiple reasons. The first is that it pays a quarterly dividend of $0.38, which today yields 4.3% annually. That's well above the 2% yield you can typically expect from the average S&P 500 stock. And although it's not a Dividend Aristocrat, Pfizer's hiked its payouts by 36% over the past five years. That trend is likely to continue; the drugmaker has been a safe investment to hang on to, posting impressive profit margins north of 20% in each of the past three years. And the New York-based company's sales during that time have remained within a narrow range of $51 billion to $54 billion, giving investors little volatility to worry about.
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However, one of the most exciting reasons to invest in Pfizer is the work it's doing with BioNTech on a coronavirus vaccine. The two companies have one of the largest vaccine trials going right now, with close to 30,000 participants taking part in it. They're looking to expand the trial to 44,000 people in order to collect data from an even more widespread group. Management expects to have results available by the end of next month, showing whether the vaccine is effective against the coronavirus. If it is, Pfizer and BioNTech would look for regulatory approval as soon as possible.
A successful vaccine to treat this global pandemic would unleash significant growth opportunities for Pfizer and could send the stock soaring. And even if that doesn't happen, the company is still a great long-term investment that will likely provide your portfolio with a steady stream of dividend income for many years. That's why it's a low-risk move for investors that has tons of upside.
Verizon
Telecom company Verizon is another attractive option for income-seeking investors. Earlier this month, on Sept. 3, the New York-based company announced it would be increasing its dividend payments for the 14th year in a row, from a quarterly payment of $0.6150 to $0.6275. With the 2% rate hike, investors will now be earning about 4.2% annually.
And there's reason to be excited about Verizon's future growth due to the deployment of 5G. Currently, Verizon says its Ultra Wideband network is already available in 35 cities, but many more are on the way. Its new-and-improved technology promises "seamless 4K streaming" along with "ultra low lag on all your connected devices." And with more people working from home during COVID-19, the demand for better, more flawless streaming, especially over video chat, is going to be high.
One way Verizon is trying to differentiate its network from its competitors is by focusing on security and making it "future-proof." The company says it will not compromise on security. An example of that commitment is Verizon's use of machine state integrity, which utilizes blockchain technology to continuously monitor servers, routers, switches, and more to help identify any changes in close to real time. Security is a big concern as more people work from home, where there are fewer controls in place than in the office. By focusing on security, Verizon can cater to businesses looking for faster connection speeds without taking on unnecessary risks along the way. Offering a safe 5G network can be a great way to complement its existing, stable business.
In 2019, Verizon's sales were flat at $132 billion, but it generated a very strong profit margin of 15%. And its business has remained stable, even amid COVID-19. In Verizon's second-quarter results, released July 24 for the period ended June 30, its operating revenue of $30.4 billion declined by just 5.1% year over year. However, its bottom line remained strong, with Verizon reporting per-share earnings of $1.13 compared with $0.95 in the prior-year period (which was weighed down by early debt redemption costs).
Which stock is the better buy today?
If you're looking to diversify your portfolio, buying shares of both Pfizer and Verizon could be great moves today, even though both are underperforming the S&P 500 this year:
But the lack of hype surrounding these two stocks should make them more attractive buys, not less -- especially in a year where many stocks are trading at extremely high sales and profit multiples, forming bubbles that could burst very soon.
With their dividend yields so similar, whether you choose to buy shares of Pfizer or Verizon could come down to whether you want to invest in telecom or healthcare. If you're indifferent, then the edge likely goes to Pfizer, as healthcare is a more recession-proof industry over the long term, and the potential for the company to have a successful vaccine ready to go by the end of 2020 is just too alluring an opportunity to pass up.
