Investors make the most money when they have more of a crockpot mentality than a microwave mentality. Buying and holding for the long term works -- when you pick the right stocks, of course.
We asked three Motley Fool contributors to identify dividend stocks that you can buy and hold for decades. Here's why they chose AbbVie (ABBV 1.25%), Bristol Myers Squibb (BMY 0.44%), and Eli Lilly (LLY 0.32%).
Keith Speights (AbbVie): Fewer than 40 stocks can claim the status of Dividend King, the elite group of companies that have increased their dividends for 50 years or more. AbbVie is one of only three drugmakers that have earned the honor.
But many members of dividend royalty don't offer yields that are especially attractive. AbbVie is a clear exception, with its dividend yield currently near 3.6%. This yield would be even higher if AbbVie's share price had not soared 45% over the past 12 months.
Technically, AbbVie has only been around since 2013. However, the business was part of Abbott Labs before then. Its roots date back to 1888.
Perhaps the best way to gauge the ability of a pharma company to survive and thrive over the long term is to see how it handles the loss of exclusivity (LOE) of a key product. AbbVie faces this scenario next year with its top-selling drug Humira losing exclusivity in the U.S.
But the company fully expects to quickly return to growth after the initial brunt of Humira's U.S. LOE. AbbVie has built a strong lineup of drugs through internal development and acquisitions.
In fact, the big drugmaker already has two successors to Humira on the market -- Rinvoq and Skyrizi. AbbVie thinks that the two drugs will combine for at least $15 billion in sales by 2025. By comparison, Humira generated $20.7 billion in global sales last year.
Over time, Rinvoq, Skyrizi, and other current blockbusters in AbbVie's portfolio will follow in Humira's footsteps with their own LOEs. However, AbbVie has demonstrated its ability to find ways to remain successful. I think the company is a good bet to continue doing so for decades to come.
Rest easy with this solid dividend stock
Prosper Junior Bakiny (Bristol Myers Squibb): Like many other pharmaceutical giants, Bristol Myers Squibb has been around a while -- the company's history dates back more than 100 years. Of course, this longevity alone isn't a guarantee of anything. Still, Bristol Myers seems to have what it takes to remain atop this industry for many more years.
Consider the company's lineup, which features such blockbuster medicines as anticoagulant Eliquis and cancer drugs Opdivo and Revlimid. These three products are Bristol Myers' best-selling medicines -- and all three were among the 10 top-selling pharma products in the world in 2021. But it's worth noting that the company had a total of eight drugs that generated more than $1 billion in sales last year.
Generic competition for Revlimid entered the U.S. market this year. That will likely lead to a drop in sales for the oncology product. Bristol Myers will face other patent cliffs for some of its most important products in the next half a decade.
Fortunately, the drugmaker is more than capable of dealing with this problem. Bristol Myers is currently in the process of bringing some new products to market that will help smooth the losses from its older products in the coming years.
The company expects $25 billion in revenue from its newer lineup of drugs in 2029. One reason Bristol Myers has been able to last so long is its ability to develop new medicines. And the drugmaker is showing, once again, that its research and development spending isn't going to waste.
Meanwhile, considering the world's aging population, lifesaving therapies will become even more important in the coming decades. This trend will help keep Bristol Myers and its peers in the industry busy -- and profitable. That will allow the company to sustain or increase its dividend payouts. Bristol Myers currently offers a yield of 2.8%, compared to the S&P 500's average of 1.37%.
The company has raised its payouts by 38.5% in the past five years. With a conservative cash payout ratio of 28.86%, there's plenty of room for more increases. Overall, Bristol Myers looks like a solid dividend payer to park in your portfolio for a long time.
Paying dividends for more than a century
David Jagielski (Eli Lilly): If you're looking for a dividend stock you can hold in your portfolio for decades, it's important to look at a business that has strong fundamentals and a bright future. That should give you a level of confidence that its payouts will remain safe over the long haul.
Eli Lilly is an excellent stock that emphatically ticks off those checkmarks. It has a vast pipeline that features dozens of programs that are in phase 2 or later trials.
Donanemab is one particularly attractive candidate with blockbuster potential. It's being evaluated in late-stage trials for treating Alzheimer's disease. Eli Lilly also has pipeline programs targeting cancer, diabetes, immunology, and pain.
The company continues to invest heavily in research and development (R&D) to open up even more opportunities. In 2021, the drugmaker spent $6.1 billion on R&D, which is nearly double the $3.1 billion it spent on dividends. And on top of that, Lilly also made $1.3 billion in share repurchases.
Eli Lilly can afford to do all that as its business is incredibly profitable, reporting more than $5 billion in earnings in each of the past three years. Its net margin is normally 20% or more of revenue. Its free cash flow has also more than doubled from $2.5 billion in 2018 to just under $5.4 billion in 2021.
The company raised its dividend by 15% this year. Its dividend yield now stands at 1.3%, in line with the S&P 500 average of around 1.4%.
Lilly has paid a dividend every year since 1885. With plenty of growth on the horizon and strong financials, Eli Lilly is one of the safest dividend stocks you'll find in the healthcare industry.