If you're looking for dividend stocks that can boost your portfolio returns, you should consider high-quality companies that can pay consistent and growing dividends. By reinvesting these dividends, you can benefit from the power of compounding and increase your wealth over time.
Two dividend stocks that stand out as strong buys right now are Eli Lilly (LLY 1.19%) and Novo Nordisk (NVO 0.84%). These two pharmaceutical giants have delivered impressive returns over the past several years and have promising growth prospects all the way out until the middle of the next decade. Here's why these two top-notch dividend stocks are still worth buying, even though they sport premium valuations.
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Eli Lilly: A value creation powerhouse
Eli Lilly has been on a phenomenal streak lately, with its shares up by a staggering 269% over the prior 36 months. The drugmaker has generated a lot of excitement in the investing world thanks to its groundbreaking experimental treatments for Alzheimer's disease and obesity, which have propelled its stock to new heights in 2023. However, its long-tailed bull run also means that Lilly's stock is now trading at a premium valuation, with a price-to-earnings ratio of over 76, making it the most expensive big pharma stock at the moment. This premium valuation, though, is arguably worth the price of admission for growth and income investors alike.
Lilly is home to an incredibly robust product portfolio and clinical pipeline that can sustain its momentum over the long term. The company has launched several new growth drivers in recent years, such as Mounjaro, Jardiance, and Trulicity for diabetes, Taltz for psoriasis, and Verzenio for breast cancer. Its late-stage pipeline also has several potential blockbusters, such as lebrikizumab for atopic dermatitis, mirikizumab for immunology, and donanemab for Alzheimer's. Moreover, Lilly's recent acquisition of Versanis Bio for $1.9 billion could give it a leading edge in the lucrative obesity care market.
Lilly offers a modest dividend yield of 0.82% at current levels, which is significantly lower than its peer group average (3.3%) and even lower than the modest average payout (1.4%) of S&P 500 listed stocks. What the drugmaker lacks in terms of yield, though, it more than makes up for on the sustainability side of the ledger. With a fairly reasonable payout ratio of 58.7% and a top line expected to rise by a scorching 16.6% next year, Lilly's dividend screens as one of the safest in the large-cap space.
Novo Nordisk: A leader in diabetes and weight loss
Novo Nordisk is a global leader in the field of diabetes and obesity, with a market value of almost $408 billion. The Danish company offers a wide range of products, including insulin, diabetes medications, and weight loss therapies. Novo Nordisk has been consistently growing its revenues and profits, thanks to its focus on innovation and its expansion into high-growth emerging markets.
Novo Nordisk's stock has also been performing exceptionally well, driven by its exposure to the lucrative weight loss market. In the last three years, the company's shares have returned nearly 260%, including dividends, far outpacing the S&P 500 index, which produced total returns of only 39.4% in the same period.
Novo Nordisk's dividend yield is not particularly high, however. The company pays dividends twice a year, with a current annualized yield of 1.13%. Moreover, the company also has a rather modest track record of raising its payout, with a compound annual growth rate (CAGR) of only 7.6% in the last five years. But its low payout ratio of 41.5% and its expected double-digit revenue growth next year suggest that its dividend program is sustainable over the long run.
