Hunting for the next big thing is an exciting investment strategy that usually doesn't work out. Luckily, there's a more reliable way to build wealth through the stock market.
If you're more interested in accumulating wealth than impressing folks with prescient stock market picks, consider these dividend-paying stocks. They probably won't deliver dramatic overnight gains, but there's a good chance they'll outperform over time.
Companies that commit to distributing a portion of their profits behave a little differently, and the end result is higher rates of return for investors. From 1973 through 2021, stocks in the benchmark S&P 500 index that initiated or grew their dividend payouts returned 10.7% annually on average. Over the same time frame, non-dividend payers delivered a measly 4.8% average annual return, according to research from Hartford Funds and Ned Davis.
AbbVie
AbbVie (ABBV -1.03%) only has a decade of consecutive annual-dividend raises under its belt because before that, it was the biopharmaceutical segment of Abbott Laboratories. Abbott had already been raising its payout for decades before the separation, and AbbVie picked up the pace. The drugmaker's quarterly payout has grown 270% over the past decade.
At recent prices, AbbVie shares offer a 3.8% yield that is way above the 1.7% yield offered by the average dividend-paying stock in the S&P 500 index. The yield is relatively high because the market is nervous about incoming competition for its best-selling drug, Humira.
Humira launched in the U.S. in 2002, and a thicket of patents kept lower-cost biosimilar versions off the market until just recently. U.S. sales of the drug reached $18.6 billion in 2022, and this figure could fall by around 30% this year.
Humira sales will tank in the face of biosimilar competition, but this isn't a one-trick pony. AbbVie has a handful of more recently launched blockbuster drugs to offset Humira's losses and allow its dividend to continue growing.
Skyrizi and Rinvoq are treatments for psoriasis and arthritis, respectively, that first earned approval in 2019. Combined sales from this pair reached $7.7 billion last year, and management expects this figure to exceed $17.5 billion in 2025.
Medical Properties Trust
Medical Properties Trust (MPW -1.51%) is a real estate investment trust (REIT) that owns around 444 hospitals and acute care facilities spread throughout the U.S. and nine other countries.
Dividend investors flock toward REITs like this one because they can avoid paying income taxes as long as they distribute at least 90% of profits to shareholders as a dividend. Instead of running its own hospitals, Medical Properties Trust just collects the rent. It generally employs long-term net leases that transfer all the variable costs of building ownership, like maintenance and property taxes, to the tenants that operate its facilities.
Inflation-conscious investors appreciate Medical Properties Trust because it builds inflation-based rent adjustments and annual escalators into its long-term leases. With highly predictable cash flows, the company has been able to steadily raise its dividend payout by 45% over the past decade. Right now, the stock offers an eye-popping 11% yield.
Shares of Medical Properties Trust have fallen hard this year because one of its larger tenants, Prospect Medical, is having trouble paying its bills. A couple of large write-downs caused the company to report a net loss in the fourth quarter of 2022.
The important thing for investors to remember is that people still need hospitals whether Prospect can make ends meet or not. Medical Properties Trust shouldn't have much trouble transitioning Prospect's troubled properties to a new operator.
Management thinks funds from operations (FFO), a proxy for REIT earnings, will reach $1.50 per share this year if lost revenue from Prospect can't be recovered in 2023. That's more than enough to meet an annual dividend obligation currently set at $1.16 per share. With its dividend program in better condition than it might appear at a distance, adding some shares of this high-yield dividend stock to a diversified portfolio looks like a smart move to make right now.
