Many retirees face the challenge of how to bring in regular income beyond their Social Security benefits. One way to make sure the bill are paid (or in some cases, the beach house mortgage is covered) is to invest in companies that pay dividends.
AbbVie (ABBV 0.22%) and Kimberly-Clark (KMB 0.01%) are two income stocks that investors nearing retirement may want to consider buying in the pursuit of stress-free Golden Years. AbbVie and Kimberly Clark have been increasing dividends for 50 consecutive years, earning them the status of Dividend Kings. Let's take a look at both.
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1. AbbVie: A 134% stock price gain adds to its benefit
AbbVie was spun off from Abbott Laboratories in 2013 and evolved into the research-based pharmaceutical business it is today. Its stock has risen 326% dating back to January 2013. That's an average of 32.6% per year for 10 years, which towers over the S&P 500's average return of 13.9% over that same time period.
The stock carries a current dividend yield of 3.94%, which is at the high end and above the average dividend yield for healthcare companies of 2.28%.
AbbVie pays out its dividends quarterly, resulting in a current total annual dividend of $5.64 per share. To elucidate that number, a $10,000 investment in AbbVie in 2013 would have bought you 293 shares. Today, that position would be worth almost $42,000, and the dividends paid in 2021 alone would have been $1,520 -- roughly $127 per month before taxes. On average, AbbVie has increased its dividend by 11% per year going back to 2015.
The company's guidance for the midpoint (GAAP diluted) EPS in fiscal 2022 is $9.36 -- reflecting a 45% increase over 2021, driven by anticipated sales growth across its product pipeline. But its leading drug Humira -- which treats arthritis, Crohn's disease, and other diseases -- faces growing competition and is projected to decline by $8.4 billion in sales in 2022, and by nearly 45% in 2023 from its 2021 totals due to patent expirations.
Helping offset the anticipated decline in Humira sales is a projected $15 billion in combined 2025 sales for its Rinvoq and Skyrizi, which would be a huge leap over the 2021 combined sales of $4.6 billion.
Assets from the 2020 Allergan acquisition are also cushioning the erosion of Humira, including Botox, Vraylar, Ubrelvy, and Juvederm. These performed well in 2021 and should keep growing in 2022 with each reaching sales of over $1 billion. 2022 guidance is pushing nearly $6 billion for aesthetics, driven by Botox Cosmetic and Juvederm which are expected to make up 73% of business unit sales.
Efficiencies from the deal should also help, to the tune of an anticipated $2.5 billion cost synergy. Expenses attributed to SG&A and R&D are both expected to rise by 9% this year but that's compared to an otherwise 24% increase that would have happened without Allergan.
Thanks to a strong pipeline, a strategic acquisition, healthy dividends, and a management team optimizing operating margin, AbbVie could provide retirees with an investment opportunity to pull in the additional income they seek throughout their golden years.
2. Kimberly-Clark: A buy-the-dip opportunity
Kimberly-Clark is being crowned a Dividend King as of this year. The company boasts the top one or two personal care brands in over 80 countries including Cottonelle, Depend, Huggies, Kleenex, and Scott. Although inflation and supply disruption can lead to higher pricing, these products can withstand market downturns.
The stock price has been volatile, but it has grown by 59% since 2013 -- the year of AbbVie's spin off. But over the past five years, the company's share price has fluctuated and is currently $131 per share -- the same level as five years ago.
Though price appreciation trails AbbVie, Kimberly-Clark pays an annual dividend of $4.64 at a yield of 3.52%, compared to a 2.25% average for consumer goods stocks in the S&P.
The company also keeps pace with AbbVie in payout ratio, paying out over 85% of total earnings to shareholders in dividends. To put that number in perspective, only 12 other companies in the top 100 high-dividend stocks list offer a payout ratio that high.
In January, Kimberly-Clark's fourth-quarter earnings beat estimates, and sales were up year over year. But the updated outlook calls for a 2022 net sales increase of 1% to 2%, while consensus estimates are looking for over 3%.
The company approved a 1.8% dividend increase for this year which will take effect in April based on investors of record on March 4. For investors looking for faster dividend payout, now might be a good time to jump in. But if you're looking for the same long-term dividend at a potentially less expensive price, there's a good chance the stock will dip if Q1 results in April fail to meet expectations.
Should you invest in both now?
If I had to choose between one or the other right now, I'd go with AbbVie, based on its growth trajectory, stock price history, and higher annual dividend payout -- considering the per-share stock price of AbbVie is only 10% higher than Kimberly-Clark. But both of these Dividend Kings make a strong case for long-term investors looking to generate consistent income during retirement to fund their lifestyle, healthcare costs or even for dividend reinvestment.
