Some decisions are difficult. But others are downright easy. That's true even when it comes to investing in dividend stocks.
We asked three Motley Fool contributors to identify no-brainer dividend stocks to buy in November. Here's why they chose AbbVie (ABBV -4.58%), Gilead Sciences (GILD 0.23%), and Johnson & Johnson (JNJ -0.46%).
The FUD factor could be a plus for this stock
Keith Speights (AbbVie): The acronym FUD stands for "fear, uncertainty, and doubt." There's definitely some FUD surrounding AbbVie right now. However, I think the FUD factor could be a plus for this stock.
This FUD relates to concerns about how the impending loss of exclusivity (LOE) in the U.S. for Humira will impact AbbVie. The blockbuster drug generated more than 37% of the company's total sales in the third quarter. AbbVie expects that Humira's U.S. sales could be nearly halved next year.
However, this event has been anticipated for years. It's already largely baked into AbbVie's share price: The stock trades at below 13 times expected sales. More importantly, the company has two drugs (Rinvoq and Skyrizi) already on the market that should help offset much of Humira's sales decline.
AbbVie thinks that it will quickly return to growth after 2023. In the meantime, the drugmaker offers an attractive dividend yield of 4.1%. It's a Dividend King with 51 consecutive years of dividend increases.
The dividend payout won't be in jeopardy whatsoever with Humira's loss of exclusivity. AbbVie should be poised to deliver solid long-term growth. The current FUD could cause some investors to be hesitant about buying the stock, but that presents a great opportunity for those who understand the positives for AbbVie.
An excellent dividend growth stock
Prosper Junior Bakiny (Gilead Sciences): Gilead Sciences is an outstanding dividend stock to consider. That's true not just because of its competitive yield of 3.72%, its low payout ratio of 26.8%, or even the fact that it has increased its dividend by 40.4% in the past five years. Rather, it is because the company's dividend program is backed by a solid business. Gilead Sciences is one of the largest biotechs in the world and is a leader in the market for HIV medicines.
The company's portfolio includes top-selling HIV drugs like Biktarvy and Descovy. The former held a 45% share of the HIV drug market in the U.S. as of the third quarter, representing a 4% year-over-year increase. Meanwhile, Descovy for PrEP (pre-exposure prophylaxis) held a greater than 40% share in this space. These numbers aren't trivial considering that the competition is heating up.
Gilead Sciences is developing newer drugs to deal with these challenges. In August, it earned approval in Europe for Sunlenca (lenacapavir), a six-month regimen for some HIV patients. The company could earn the green light for this therapy in the U.S. in December. Sunlenca would become the first twice-a-year HIV regimen and could become highly successful as a result.
In oncology, Gilead Sciences' Trodelvy continues to grow its sales rapidly. In the third quarter, Trodelvy's revenue jumped by 78% year over year to $180 million. The cancer medicine could earn additional indications, too. Gilead Sciences' pipeline features plenty more programs in HIV, oncology, inflammatory diseases, and more.
While the biotech's total revenue decreased by 5% year over year to $7 billion in the third quarter, that was entirely due to its coronavirus therapy, Veklury. Excluding this product, Gilead's total sales jumped by 11% year over year to $6.1 billion.
Once pandemic-related dynamics are behind us, Gilead Sciences' lineup, which will almost certainly include Sunlenca in the U.S., will be in a great position to help the company grow its revenue and earnings while rewarding shareholders with dividend hikes. That's what makes Gilead a top dividend stock to buy this month.
This Dividend King is becoming an even better buy
David Jagielski (Johnson & Johnson): If there's one stock I would suggest for a safe and no-brainer dividend, it's Johnson & Johnson. J&J is a top healthcare company that consistently generates billions in free cash flow and profits. In each of the past four quarters, the company has reported at least $23 billion in revenue with net income never lower than $4.4 billion. Those are some excellent profit margins (close to 20%) that give Johnson & Johnson the room to grow its business and still pay an above-average dividend yield of 2.6% (the S&P 500 average is less than 1.8%).
The company's payout ratio is manageable at just over 60%. This leaves room for Johnson & Johnson to continue making generous increases to the dividend. And as a Dividend King, it has an incredible track record for increasing its dividend payments for 60 consecutive years. Currently, the company pays $1.13 per share every quarter, which is 6.6% higher than last year's quarterly payment of $1.06. Back in 2012, Johnson & Johnson was paying $0.61 every quarter, meaning that its payouts have risen by 85% since then, which averages out to a compound annual growth rate of 6.4%.
J&J plans to spin off its consumer health business next year. The company's new focus on pharma and medtech should add even more safety and growth potential for the stock in the long run. Its consumer health business hasn't been generating much growth. Getting away from the troubled segment that has caused significant legal concerns for investors (particularly to do with its talc baby powder products) should make the business a safer investment in the long run.
Johnson & Johnson's recent move to buy heart pump maker Abiomed for $16.6 billion demonstrates the company's priority of focusing on growth moving forward. Not only is Abiomed a growing business, but it is also a profitable one that will make Johnson & Johnson's business stronger and more robust than it already is.
The stock is currently trading at 24 times earnings. That's only slightly higher than the average healthcare stock, which is at a multiple of 21. I think that buying Johnson & Johnson stock is one of the safest moves investors can make right now.
