A cool thing about dividend stocks is that when their shares drop, their dividend yield rises, giving shareholders an opportunity to add to their positions and lock in better cash returns at a lower price. In the current bearish market, several appealing options have been created to do just that and allow savvy investors to increase their passive income.
Of course, it only makes sense to buy a beaten-down dividend stock if you're confident that the company's cash flows will be consistent enough to support its payout year after year. With that in mind, let's take a look at two stocks that have taken a significant price lately but still have what it takes to maintain (and even grow) their dividend distributions to investors.
The national pharmacy chain Walgreens Boots Alliance (WBA 6.41%) is doubtlessly in a slump, with its shares down 47.2% in the last five years. This decline is related, in part, to the slowing growth of its top line, with its trailing-12-month revenue total rising by only around 11.7% over those five years. And it's no surprise why that's the case: The demand for pharmacy services is relatively static from year to year, even when the business offers fresh and relatively popular products like coronavirus diagnostic tests.
The good news is that there won't be a massive decline in demand for its core offerings either, which means that diligent maintenance of profitability and slow top-line growth can easily generate very stable returns for investors over time. Plus, it doesn't take much profitable growth to fund conservative dividend hikes. Since the third quarter of 2012, Walgreens' dividend rose 74.5% while its quarterly free cash flow (FCF) increased by 374.7%.
At present, it's making significantly more in net income than it needs to keep paying (and hiking) the dividend. And with its ongoing plan to diversify into offering primary care services at its branded clinics, revenue growth might even start to pick up over the next few years.
What's more, its forward dividend yield of more than 5.3% is quite meaty for such a stable business. So, if you're willing to take a risk on Walgreens' stock falling further during this bear market in exchange for a steady quarterly payment into your account, it's a good option for a long-term hold.
If you take a popular generic for a medication like Lipitor, there's a good chance that Viatris (VTRS 0.51%) manufactured it. Since its spinoff from Pfizer in late 2020, the company's life as an independent drug manufacturer hasn't been easy for shareholders, though. Its share prices are down by more than 31% in the last year alone, spurred by its most recent quarterly revenue wilting by around 9.2% year over year (just over $4.1 billion in the second quarter).
That price drop has helped push Viatris' dividend yield to an appealing 4.9%. It's also appealing because the payout has been hiked by more than 9% in the last 12 months. There's reason to believe that the company will keep increasing its payout in the long term, too, as management has specified that it's a priority. But the company will likely take a while to blossom into the kind of consistently growing stock that Walgreens is.
Growing Viatris' top line requires the continued development and manufacture of more generic medicines and then the ability to profitably produce them on a global scale. Viatris is narrowly profitable now, and it's working on streamlining its operations and reducing its cost of goods sold (COGS) to save as much as $1 billion in costs annually by the end of 2023. It's also planning to launch six new generics before the end of 2025, which will lead to significant revenue growth.
Compared to Walgreens, Viatris is somewhat riskier, as it hasn't yet been an independent company for long enough to have a strong track record. Still, if it can slash its costs while expanding its sales and deleveraging its debt over the next few years, it'll be a good candidate for holding for decades to generate passive income, even if its stock probably won't outperform the market anytime soon.