3 Great Dividend Stocks to Buy in October

Dividends are important -- and not just for income investors. More than half of the S&P 500's total return over the past 30 years came from reinvesting dividends.

We asked three Motley Fool contributors to identify great dividend stocks to buy in October. Here's why they chose AbbVie (ABBV -4.58%), Johnson & Johnson (JNJ -0.46%), and Merck & Co. (MRK 0.37%). 

A growth king

Keith Speights (AbbVie): Probably the first thing investors look for with a dividend stock is its yield. AbbVie doesn't disappoint on this front with a juicy dividend yield of 4.2%. However, this yield is only part of the story.

AbbVie also has an impeccable track record of dividend hikes. The big drugmaker has increased its dividend for 50 consecutive years, making it a Dividend King. Since spinning off from Abbott in 2013, AbbVie has boosted its dividend payout by more than 250%.

The stock has also been a big winner for investors. AbbVie's shares have soared nearly 90% over the past three years and are handily beating the overall market so far in 2022.

One fly in the ointment for AbbVie is that its top-selling drug, Humira, faces biosimilar competition in the United States beginning in 2023. The company's sales will almost certainly decline as a result.

However, it's important to look ahead to where AbbVie will be in three years, 10 years, and beyond. The company already has two worthy successors to Humira on the market. AbbVie also has several other growth drivers in its lineup, plus a promising pipeline. I think this stock will keep up its winning ways for a long time to come.

As safe as dividends get

Prosper Junior Bakiny (Johnson & Johnson): For dividend-seeking investors, healthcare giant Johnson & Johnson checks all the right boxes, starting with its storied dividend history. The company has raised its payouts for 60 consecutive years. That puts J&J in the same exclusive club of Dividend Kings to which AbbVie belongs.

Next, there is the company's sturdy business. Johnson & Johnson's portfolio of drugs is both vast and diversified. It markets products within neuroscience, immunology, oncology, infectious diseases, and more. The company has a history of developing novel products, a necessary condition for pharmaceutical companies to remain successful over long periods. 

Johnson & Johnson also owns a medical device unit that develops cutting-edge technology to address various heart-related problems, vision issues, and much more. The company is currently spinning off its consumer health segment, home to various over-the-counter healthcare brands. It should complete this transaction by year end.

J&J should then become a leaner, more focused company that is less burdened by the thousands of lawsuits related to some of its consumer health products. Healthcare never runs out of style. Johnson & Johnson's long-standing leadership in the field and the steady earnings it generates will allow it to remain successful. 

Then there is the company's solid balance sheet. Johnson & Johnson boasts an AAA credit rating from Standard & Poor's. That's as high as it gets and a testament to the company's ability to handle its debt.

When corporations are in financial trouble, they sometimes choose to cut their dividend to save funds. That's unlikely to happen to Johnson & Johnson. In the past three years (i.e., amid the devastation caused by the pandemic), J&J has increased its payouts by 18.95%. With an above-average yield of nearly 2.8% and a reasonable cash payout ratio of 56.8%, there should be many more dividend increases in the company's future.

All this means I don't think that income-seeking investors can go wrong with Johnson & Johnson. 

A high yield with room to go even higher

David Jagielski (Merck & Co.): I believe that Merck definitely ranks as a top dividend stock that investors should consider buying this month. The diversified pharmaceutical company makes medicines for a variety of therapeutic areas, including diabetes, immunology, neuroscience, and oncology.

Cancer drug Keytruda is Merck's top moneymaker, generating more than $10 billion in revenue through the first half of this year and one-third of the company's total sales during that stretch. Merck has also reported a solid profit of $8.3 billion year to date, with an impressive net margin of 27%.

The company's strong financials allow it to pay a dividend that yields 3.1% today. That's well above the S&P 500 average of 1.8%. On a $10,000 investment, that can be an extra $130 per year in dividends by going with Merck compared to the S&P 500.

Merck has paid dividends for decades. It has also been increasing those dividends in recent years, with a compound annual growth rate of 8% over the last five years. If the company were to continue making dividend increases at that pace, it would take only nine years for Merck's dividend to double.

There's plenty of room for Merck to continue increasing its payouts. Its dividend payout ratio currently stands at only 42%. The company normally announces its dividend increases in November, so investors may not have to wait too long before another hike.

Merck's high yield, strong margins, and blockbuster drug in Keytruda should make it an attractive option for investors. I think that it's an investment that can set you up for life.