Income investors won't be happy with dividends that aren't sustainable. Instead, they want to own dividend stocks that they can depend on.
Three Motley Fool contributors identified stocks that should make income investors happy. Here's why they think AbbVie (ABBV -4.58%), Johnson & Johnson (JNJ -0.46%), and Novartis (NVS -1.64%) are unstoppable dividend stocks to buy right now.
More unstoppable than you might think
Keith Speights (AbbVie): At first glance, AbbVie could appear to be quite stoppable. Sales of its top-selling drug Humira are tanking in the face of biosimilar competition. The company's revenue and profit are falling as a result. Its stock is down year to date while the overall market has soared.
However, AbbVie is more unstoppable than you might think. The pharma giant planned well for the day when Humira's sales would begin to sink. It invested heavily in research and development. The company also made smart acquisitions.
It's not surprising that AbbVie would feel the pain when Humira, the former best-selling drug in the world, lost patent exclusivity. But that pain shouldn't last very long.
Sales for the company's two successors to Humira, Rinvoq and Skyrizi, continue to soar. AbbVie Vice Chairman and President Rob Michael said in the second-quarter conference call that the two drugs should "deliver robust growth into the next decade and significantly exceed Humira peak revenue." The company has several other growth drivers as well, notably including antipsychotic drug Vraylar and its migraine drugs Qulipta and Ubrelvy.
Then there's the dividend. AbbVie has increased its dividend annually for 51 consecutive years (40 of those years were as a subsidiary of Abbott Laboratories). Its dividend yield stands at 3.9%. The drugmaker remains in a strong position to continue raising its dividend payouts in the future.
It will take a lot to stomp this pharma giant
Prosper Junior Bakiny (Johnson & Johnson): Is any company truly unstoppable? After all, every business faces challenges and risks, so there is always the chance, however remote, that things will go wrong. Still, some corporations are about as unstoppable as possible, and drugmaker Johnson & Johnson fits the bill.
For 61 straight years, the company has increased its dividend payout. That makes it a Dividend King, a status it has worked hard to achieve and is unlikely to put in jeopardy anytime soon.
Investors tend to be more interested in the future potential of a company than in its past performance, and there are good reasons to be optimistic about Johnson & Johnson's prospects. Consider the company's vast portfolio of medicines and medical devices. Many of them help address serious, sometimes even life-threatening, conditions; The company's drugs are especially concentrated within its immunology and oncology segments. Johnson & Johnson's products remain in high demand regardless of economic conditions.
Furthermore, the healthcare giant is constantly innovating, so it should continue delivering decent results. Johnson & Johnson's AAA credit rating also shows how robust the company's balance sheet is. Risks? Yes, Johnson & Johnson does face some, notably those related to its legal troubles. Thousands of lawsuits allege that Johnson & Johnson's talc products gave customers cancer.
But even that shouldn't stop Johnson & Johnson. The company is working to resolve the issues in a way that keeps the business operating and growing. Investors can safely count on this company to continue producing solid revenue, earnings, dividend growth, and steady stock market returns for a long time.
Novartis pays a high yield and has excellent growth prospects
David Jagielski (Novartis): Swiss pharmaceutical company Novartis isn't a flashy stock to hold, but it can be a reliable investment to hang on to for the long term. It generates consistent growth, and its dividend yield of 3.4% is more than double the S&P 500 average of 1.5%.
Earlier this year, the company announced that it will raise its dividend for the 26th straight year. Even with the 3.2% increase, Novartis estimates that its payout ratio will be roughly 61% of free cash flow. That's a healthy and sustainable dividend, and it suggests there could be room for even more rate increases in the future.
The drugmaker reported $26.6 billion in revenue through the first six months of the year, representing 8% growth excluding the impact of foreign currency exchanges. Heart drug Entresto has played a key part in the company's growth, with sales of $2.9 billion through the first half of 2023 growing at a rate of 35% year over year at constant currency. During the first two quarters, the company's free cash flow was just under $6 billion, rising by 23% from the same period last year.
Novartis is spinning off its generic and biosimilar business, Sandoz, later this year, which should help it focus more on developing new medicines and strengthening its future growth prospects. By becoming leaner, Novartis' growth rate could improve even further. The company has a large pipeline, with 129 innovative medicines currently in development, 44 of which are in phase 3 trials and seven that in the registration process.
For long-term investors, there's a lot to like about Novartis' business. It has multiple growth opportunities. It offers an incredibly attractive payout. With shares trading at only 15 times estimated future earnings, the stock provides good value and is a great buy for the long haul.
