Dividend stocks can be consistent market-beaters. However, empirical research shows that the best dividend stocks tend to generate better-than-average returns because of their underlying value proposition -- not their potential to deliver consistent levels of passive income.
Which undervalued dividend stocks are worth buying right now? Following the latest round of corporate earnings, AbbVie (ABBV -4.58%) and Altria (MO -0.37%) both come across as highly attractive buys as a result of their hefty yields and core value propositions. Read on to find out more about these top-shelf dividend stocks.
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AbbVie: A 4.49% yield
AbbVie is a large-cap pharma company best known for its powerhouse immunology drug, Humira. Because of Humira's strong performance and profitability, AbbVie has been able to reward its shareholders with generous dividend increases since its spinoff from Abbott Laboratories in 2013. Currently, AbbVie pays an annualized dividend of $6.20 per share, which translates to a 4.49% yield at the current share price.
It hasn't been all sunshine and rainbows for the drugmaker this year, however. Humira and the blockbuster blood cancer drug, Imbruvica, have both been losing market share in 2023. As a result, the company's annual sales are on track to decline over the course of both 2023 and 2024.
On the bright side, management expects the company to return to modest single-digit revenue growth by 2025, and maintain this trend for the rest of the decade. Management's turnaround thesis stems, in part, from the impressive sales trajectory of the company's newer immunology drugs, Rinvoq and Skyrizi.
Although AbbVie may have to unearth a hidden gem on the merger-and-acquisition scene to shore up its long-term financial projection, the company's top-shelf management team arguably deserves the benefit of the doubt on this matter. After all, the company has hit on a few successful bolt-on acquisitions in recent years.
So with AbbVie's stock trading a paltry 12.8 times projected earnings, it might be a good idea to start to build a position in this Dividend King or add to an already existing position.
Altria: A 9.93% yield
Like AbbVie, American tobacco giant Altria hasn't been a winner for shareholders in 2023. Thanks to an unfavorable combination of declining sales for its premium cigarette brands such as Marlboro and competition from illegal flavored e-vapor products, Altria's shares have shed 14% of their value this year.
This double-digit decline, though, may represent a compelling entry point for long-term investors. Three key reasons underlie this point.
First off, Altria has been working diligently to diversify beyond traditional tobacco categories such as cigarettes, cigars, and moist smokeless tobacco. To wit, the company has been busy building up its electronic nicotine product offerings, along with its oral nicotine pouch franchise, in 2023.
Second, Altria's shares are trading at a near-historic low from a projected earnings standpoint: 7.72. While it's true that the tobacco industry is shrinking at a rapid clip, and smokers are cutting back on premium brands in response to inflation this year, Altria remains extremely profitable. Moreover, it has the massive scale necessary to successfully launch into tobacco-adjacent product categories to keep the business growing in the years ahead.
Third, Altria is an extremely shareholder-friendly company, evinced by its sky-high dividend year of almost 10%, its 54-year history of consecutive dividend raises, and regular share buybacks. On this last point, the company has reduced its outstanding share count by nearly 40% since 1990.
MO Average Diluted Shares Outstanding (Quarterly) data by YCharts
In all, Altria definitely qualifies as a company in transition. But its strong free cash flows, investments in a smokeless future, and shareholder-friendly policies make its shares a no-brainer buy for long-term income investors.
