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2 Stocks That Are Perfect to Buy Now and Hold Until Retirement

By Anirudh Shankar - Updated Apr 13, 2021 at 4:58PM

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Their high yields and history of success bode well for the long term.

Investors approaching retirement tend to be focused on investing prudently in those last few years before leaving the workforce, with many seeking to maximize their dividend income. Two companies in the healthcare sector stand out as good prospects in that regard, both now and in the future: AbbVie (ABBV -0.03%) and Pfizer (PFE 0.60%).

Both currently yield more than 4% -- much higher than the 1.37% current average of the S&P 500 -- and both are solidly positioned for consistent ongoing growth. These dependable businesses are committed to rewarding shareholders in the long run.

Senior woman and man on bikes

Image source: Getty Images.

1. AbbVie: Buy while it's still cheap

AbbVie came onto the market in 2013 after being spun off from medical device company Abbott Labs. It joined a crowded landscape, competing against the likes of Johnson & JohnsonPfizerMerck, and Bristol Myers Squibb. Since then, management has wasted no time in developing several breakthrough drugs and driving sales to generate tremendous returns for shareholders. 

AbbVie has several leading products, including Humira (for Crohn's disease), Skyrizi (for psoriasis), and Rinvoq (for rheumatoid arthritis), all of which have helped drive returns of nearly 222% since inception. Its most recent triumph, Humira, was the world's best-selling drug in 2020 with revenue of nearly $20 billion.

Such blockbuster drugs have contributed to remarkable revenue growth since inception, with earnings per share (EPS) up 32% in fiscal 2020 alone (partly thanks to sales from Allergan, which AbbVie acquired that year). Management expects adjusted EPS to be up at least 16.7%. 

In today's market, not every company is right to buy and hold. But this stock looks poised to compound tremendously for the next several decades. It generates superb cash flows and offers a 5% dividend yield to reward investors both young and old. Even with AbbVie's 35% gain in the past year, I believe it is still a buy and a reliable company to hold for the long run.

2. Pfizer: Never a bad time to buy

Pfizer has been a leader in the fight against COVID-19. The vaccine it created with partner BioNTech was the first approved by the U.S. Food and Drug Administration (FDA), on Dec. 11. It's expanding by building out its vaccine business, which management thinks could be a great future source of potential revenue for the company.

Pfizer has a total of 95 discovery projects in its pipeline, and while most such projects (at any company) will never make it to phase 3 trials, Pfizer has always managed to stay ahead of the competition. In 2019, the clinical trial success rate for its products was 9%, edging out the competition's average of 8%. In 2020, the company has managed to more than double its success rate to 21%, still an outperformance compared with competitors.

In recently provided 2021 financial guidance, management called for full-year revenue in the range of $59.4 billion to $61.4 billion, an almost 30% increase from the $41.9 billion in revenue it saw in 2020. The company currently trades at a price-to-earnings ratio of 11.21 and has a 4.3% dividend yield. Management recently announced a 5.5% dividend raise, which took effect in March. Pfizer offers a growing stream of dividends for investors looking to supplement their income in retirement. 

Just buy and hold

A study by Raymond James examining the many recessions going all the way back to 1926 showed that between 1926 and 2010 -- through the Great Depression, the dot-com bubble, and the Great Recession of 2008, among other things -- large-cap stocks achieved a compound annual growth of 9.9%. Investing in healthcare companies like AbbVie and Pfizer -- businesses that offer both share-price appreciation and a 4%-plus dividend yield -- can help you secure a profitable retirement.

Anirudh Shankar owns shares of Bristol Myers Squibb, Pfizer, AbbVie, and Merck. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
$49.87 (0.60%) $0.30
AbbVie Inc. Stock Quote
AbbVie Inc.
$140.30 (-0.03%) $0.04
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$89.58 (1.23%) $1.09
Johnson & Johnson Stock Quote
Johnson & Johnson
$170.46 (0.15%) $0.26
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
$75.03 (1.67%) $1.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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