Dividend stocks have not performed particularly well in 2023, and for good reason. With many financial institutions offering safer alternatives, such as money market accounts and certificates of deposit, with annualized rates above 5%, there's been little reason for investors to stomach the volatility associated with equities.
Completely ignoring dividend stocks probably isn't a smart idea for long-term investors, however. Dividend stocks have a long history of outperforming most other asset classes over holding periods of 20 years or longer.
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Which dividend stocks stand out as top buys for patient investors right now? Biotech heavyweight Amgen (AMGN 0.22%) and telecom stalwart Verizon Communications (VZ 1.17%) are two Dow Jones dividend stocks that scan as compelling buys right now. Here's a brief overview of each company, as well as its dividend program.
Amgen: A value creation powerhouse
Amgen is a biotech pioneer that has been transforming human health since 1980. Based in California, the company launched its initial public offering (IPO) in 1983 and achieved its first major FDA approval in 1989 for Epogen, a breakthrough biologic for anemia. In 1991, Amgen added another milestone to its track record with the approval of Neupogen, a biologic that stimulates white blood cell production.
These two groundbreaking products propelled Amgen's stock to phenomenal heights, rewarding early investors with extraordinary returns. To illustrate, a $1,000 investment in Amgen's IPO would be worth over $1 million today (assuming dividends were reinvested).
AMGN Total Return Level data by YCharts
In 2011, Amgen started paying a dividend to its shareholders. Since then, the company has raised its dividend at an impressive compound annual growth rate of 10%. Currently, Amgen offers a generous 3.16% yield and a sustainable payout ratio of 54.8%.
Despite facing some hefty challenges from aging products, pricing pressures, and competition, Amgen's heavy emphasis on innovation in high-value areas like weight loss, immunology, cardiovascular care, and cancer, ought to keep it headed in the right direction. As a result, the company's dividend program appears to be a safe bet for the foreseeable future, making it a great addition to a portfolio geared toward income generation.
Verizon Communications: A winner on quality
Formed in 2000 via a merger between Bell Atlantic and Vodafone AirTouch, Verizon has established itself as one of the largest wireless carriers in the United States. The company's core value driver is its superb network quality.
Because of the capital-intensive nature of building out high-quality 4G and 5G networks across the nation, however, Verizon's shares haven't been a market-beating play for shareholders over its 23-year lifespan. While a $1,000 investment in the wireless carrier's IPO would be worth a little over $2,200 today, the same amount invested in an index fund tracking either the Dow Jones or the S&P 500 would be worth more than $4,200 right now.
Nonetheless, Verizon stock is starting to look like a sneaky smart buy for a couple of reasons. First off, the company pays a blistering 7.95% dividend yield and its payout ratio of 52.7% is reasonable as well. Free cash flows have also improved in the second half of 2023, and analysts expect this favorable trend to pick up more momentum in 2024. Lastly, Verizon's shares are presently trading at a rock bottom 7.14 times projected earnings.
Now, this wireless giant isn't a pillar of growth. In 2024, Wall Street only expects sales to rise by a paltry 1.5%. But its dirt cheap valuation, sky-high dividend yield, and improving free cash flows should buoy its stock price in 2024 and beyond.
