Built to last. Those are three words that every income investor should like to hear. Companies with enduring business models can continue paying dividends year in and year out.
We asked three Motley Fool contributors to identify companies with solid businesses that are built to last and that also offer attractive dividends. Here's why they chose AbbVie (ABBV 0.98%), Eli Lilly (LLY 1.96%), and Pfizer (PFE 0.23%) as dividend stocks that you can buy and hold forever.
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A Dividend King with solid long-term prospects
Keith Speights (AbbVie): For income investors, the first thing that stands out about AbbVie is that it's a Dividend King. The big drugmaker has increased its distributions for 50 consecutive years (including the period when it was part of Abbott Labs).
Those dividend hikes haven't been paltry, either. Since it was spun out of Abbott, AbbVie has boosted its payouts by more than 250%.
More importantly, though, AbbVie remains in a great position to keep the dividends coming. The company's profits totaled nearly $4.5 billion in the first quarter. At that rate, it should easily be able to continue funding its dividend program.
Granted, the biopharma giant will soon face some headwinds. Its top-selling drug, Humira, will lose U.S. market exclusivity next year. AbbVie's financial results will almost certainly suffer as biosimilar rivals gain market share at Humira's expense.
However, the company has built an impressive supporting lineup through internal development and acquisitions. AbbVie fully expects to return to modest top-line growth in 2024, followed by solid growth throughout the rest of the decade.
A deceptively low dividend
David Jagielski (Eli Lilly): Not all dividend stocks are safe buys for the long haul. So if you're looking for an income investment you can just buy and forget about, it's important to consider not just the company's future but also what its track record has been, especially with respect to dividends.
Looking at just the yield can be misleading. At its current share price, Eli Lilly's yield of 1.3% is lower than the S&P 500's average of 1.4%. However, there aren't many dividend stocks with better histories out there than Eli Lilly.
The healthcare company has been paying dividends going back to 1885. And although it doesn't have an impressive uninterrupted streak of annual dividend increases, it has generously raised its payouts over the years. For example, it has doubled its dividend since 2011.
Eli Lilly has also delivered strong revenue and cash flow growth in recent years. Free cash flow last year was $5.4 billion, more than twice what it generated in 2018. All that money flowing into the business, which today generates around $28 billion in annual revenue, provides Eli Lilly with the means to invest in its operations and keep developing its already-robust pipeline.
The company has dozens of clinical trials underway spanning multiple therapeutic areas, including cancer, diabetes, immunology, pain, and neurodegeneration. Among its most promising drugs is Mounjaro, which the Food and Drug Administration recently approved to treat type 2 diabetes. It has also shown incredible potential in helping people lose weight.
True, management doesn't expect much sales growth this year (at most, it forecasts less than 4%). However, there could be a lot more room for the business to grow through investments in its promising pipeline. That, in turn, could help fuel more dividend hikes.
Eli Lilly gives dividend investors much more than just a good payout to rely on. With strong fundamentals and a promising future, it's easy to justify holding this healthcare stock forever.
This stock offers a little bit of everything
Prosper Junior Bakiny (Pfizer): Pharma giant Pfizer has been on a roll over the past year, largely thanks to its coronavirus vaccine, Comirnaty. In its fiscal 2021, the drugmaker reported revenue of $81.3 billion, 92% higher than the previous year. To put things in perspective, revenue growth in the low-to-mid double-digit percentages is viewed as solid for a pharmaceutical company of Pfizer's size.
But Pfizer isn't done. During its first quarter, the company's revenue soared by 82% year over year to $25.7 billion. It is generating plenty of cash, too. Over the trailing 12-month period, it booked $31.8 billion in free cash flow, an increase of 50.36% year over year.
Pfizer's business is running like a well-oiled machine. That's great news for income investors. At its current share price, the drugmaker's dividend offers an above-average yield of 3%. It also has a conservative payout ratio of 27.7%, giving it plenty of room for future increases.
But there's even more to this company. Despite the dazzling performances recorded in the past year, Pfizer's shares remain attractively valued. The stock's forward price-to-earnings ratio of 7.4 is well below the pharmaceutical industry average of 13.1.
The pharma stock looks like a steal at current levels, especially for investors willing to hold onto its shares for years. Life-saving medicines won't go out of style anytime soon. And demand for innovative therapies will only increase in the coming decades due to the world's aging population.
Pfizer is one of the largest pharmaceutical companies in the world. It boasts a solid pipeline of drugs, with about 90 ongoing clinical trials. It also has the funds to acquire smaller drugmakers -- and their promising pipeline products -- should it choose to.
With a proven ability to navigate the highly regulated healthcare sector and deliver breakthrough therapies, expect Pfizer to remain successful for many years. In short, Pfizer looks like an ideal buy-and-forget stock.
