If you are looking for a reliable source of income from your investments, you might be interested in high-yield dividend stocks. These are stocks that pay out a large percentage of their earnings to shareholders in the form of dividends.
However, not all high-yield stocks are created equal. Some may have unsustainable payouts, declining businesses, or high debt levels that could jeopardize their dividends in the future. Therefore, it is important to do your homework and pick high-quality companies that can maintain or grow their dividends over time.
Healthcare giant AbbVie (ABBV -4.58%) and telecom behemoth Verizon Communications (VZ 1.17%) are two popular high-yield dividend stocks. Both are well-known names in their respective industries, and both offer extremely attractive yields right now. But which one is a better buy for dividend investors? Let's take a closer look at each company to see how they stack up.
The case for AbbVie
AbbVie is a biopharmaceutical company that develops and sells drugs for various therapeutic areas, such as immunology, oncology, neuroscience, and medical aesthetics. The company is best known for its blockbuster drug Humira, which treats various inflammatory diseases and has consistently been one of the world's best-selling drugs over the past decade. Humira accounted for about 28.9% of AbbVie's revenue in the second quarter of 2023, generating $4.01 billion in total net sales.
However, Humira is facing increasing competition from biosimilars, which are cheaper versions of biologic drugs, in both the U.S. and E.U. To reduce its dependence on Humira, AbbVie has been diversifying its portfolio through acquisitions and organic growth. In 2020, for instance, AbbVie completed a $63 billion acquisition of Allergan, the maker of Botox and other aesthetic products.
The drawback is that AbbVie's aggressive dealmaking has created a sizable debt overhang for the company. As a result, it won't be able to easily change course via additional business development activity in the event its pipeline efforts fail to cover Humira's commercial decline.
Despite the challenges posed by Humira's patent expiration, however, AbbVie's management expects to deliver strong earnings growth in the back half of the decade. That being said, some analysts aren't convinced by the drugmaker's optimistic forecast due to emerging competition in immunology, oncology, and medical aesthetics.
AbbVie has a solid track record of rewarding its shareholders with dividends. Speaking to this point, the company has raised its dividend for 51 consecutive years. AbbVie currently pays a quarterly dividend of $1.48 per share, which translates to an annual yield of 3.92%.
The bad news is the company has a worryingly high payout ratio of 118%. Further dividend increases, in turn, might be a big ask without a major bump in earnings.
The case for Verizon
Verizon is one of the largest wireless carriers in the U.S., with a roughly 40% market share of the postpaid subscriber segment. The company's main competitive advantage is its network quality and coverage, which consistently rank among the best in the industry.
Verizon is investing heavily in its 5G network, which promises faster speeds, lower latency, and higher capacity than 4G. The telecom giant plans to leverage its best-in-class wireless network to steadily raise average revenue per account over time.
However, Verizon faces intense competition from its rivals AT&T and T-Mobile. As a result, most analysts don't expect Verizon to be a top growth stock over the balance of the decade. In 2024, for instance, Wall Street expects the company to increase annual revenue by a meager 1.6%.
Thanks to its modest growth profile, the company's investing thesis largely centers around its generous dividend program. Verizon pays a quarterly dividend of $0.6525 per share, which translates to an annualized yield of 7.66%. The telecom behemoth also sports a reasonable payout ratio of 52.2%, indicating a sustainable dividend.
Additionally, the company's exposure to the lead cable issue doesn't seem large enough at this early juncture to force a rethink on its top-shelf dividend program, although Verizon is still in the process of gathering information on the matter.
The verdict
In this head-to-head matchup, Verizon screens as the better high-yield dividend play. While the telecom giant can't offer that much in the way of top-line growth, it sports a substantially higher dividend than AbbVie, and it has a markedly lower payout ratio to boot.
