Over long periods, dividend stocks tend to outperform their non-dividend-paying counterparts. There are likely several reasons for this, one of which is that sustaining a dividend program requires a solid underlying business. So corporations that are able to consistently pay dividends and raise their payouts tend to have other things going their way. That makes these stocks great targets for investors focused on the long game.
And with that in mind, let's consider two dividend stocks worth holding onto now: AbbVie (ABBV -4.58%) and Visa (V -0.23%).
1. AbbVie
AbbVie's dividend profile looks great on paper. It's a Dividend King with 52 consecutive years of payout hikes -- if you include the time it spent as a unit of Abbott Laboratories. AbbVie's yield at its current share price is 4.48%, compared to the S&P 500's average of 1.62%. Since its spinoff as an independent entity in January 2013, the drugmaker has raised its dividend by an impressive 288%.
However, the detractors will quickly point out that AbbVie's key asset, Humira, is now facing generic competition. AbbVie's sales have been dropping this year as a result. That's also the reason for the company's poor stock market performance in 2023. Still, patent cliffs are nothing new, and they are more than manageable for well-established pharmaceutical giants.
AbbVie's research and development pipeline has already produced two new immunology drugs, Skyrizi and Rinvoq, that between them treat the same conditions as Humira. Management expects their combined annual sales will surpass those of Humira by 2027.
AbbVie has produced many more important assets in several therapeutic areas. There is migraine treatment Qulipta, and the newly approved cancer treatment Epkinly, among others. AbbVie can also count on more established products such as its Botox franchise, cancer treatment Venclexta, and depression therapy Vraylar. AbbVie won't stop expanding its lineup. The company's pipeline features more than 90 products.
Even a handful of approvals per year should lead to a broader revenue base over time. Eventually, the effects of Humira's slumping sales will stop impacting AbbVie's financial results. It will return to growth and continue to reward shareholders with dividend increases for a long time. Since it is already a Dividend King, it would be unlikely for AbbVie management to skip an annual increase or cut the payout if that could be avoided, as to do so would mean being kicked out of that exclusive club.
AbbVie's underlying business, despite the Humira patent cliff, remains solid and built to perform well in the long run. And given the healthcare giant's dividend profile, income-seeking investors can't go wrong with this stock.
2. Visa
Visa is a leader in its space, providing a payment processing platform that allows credit card transactions to run smoothly. It makes money on fees every time a customer uses a card with its logo -- and millions of those transactions take place every single day. And as long as people keep spending money, especially as they increasingly switch away from cash and checks, Visa will have plenty of room to increase its revenues and profits.
That's especially the case since it benefits from a powerful network effect. The ever-rising numbers of merchants that accept its cards and consumers who use them make its ecosystem progressively stronger. That's why knocking Visa off its pedestal would be extremely difficult for any upstart contender.
Meanwhile, the company continues to deliver excellent financial results. In its fiscal 2023, which ended on Sept. 30, Visa's revenue increased by 11% to $32.7 billion, while its net income rose 15% to $17.3 billion. Visa's strong financial results last quarter weren't an anomaly.
V Revenue (Annual) data by YCharts.
Note Visa's impressive profit margin of nearly 53% for its fiscal 2023. The company generates high margins since it no longer needs to spend money building its payment network. The network is already in place, and additional transactions don't add additional expenses. Visa's strong underlying business only makes its dividend program more attractive.
Nor do investors have to worry about its payouts being suspended or cut. The company has raised its dividends by an incredible 420% in the past 10 years. While Visa's yield of 0.82% at its current share price isn't impressive, its cash payout ratio of 19% is quite conservative. So long-term investors shouldn't focus too much on the company's yield today.
Visa is ideally positioned to continue delivering above-average financial results, stock market returns, and dividend increases for a long time.
