It's too early to predict what the market will do next year, but there's one way to guarantee some stock market gains. And that's by investing in dividend stocks.
These players offer you passive income -- even when their share prices are falling or the general market is declining. They represent returns you can count on.
For that reason, as you prepare your portfolio for the next investing year, it's a great idea to add a few dividend stocks to the mix. Which dividend stocks should you select?
Right now, three in particular are trading at bargain prices, offering you a great opportunity to scoop them up. I'm talking about healthcare giants AbbVie (ABBV -4.58%), Medtronic (MDT 0.62%), and Pfizer (PFE 0.55%). Plus, the sooner you get in on these players, the sooner you can start collecting dividends. Let's take a closer look at each one.
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1. AbbVie
AbbVie has made dividends its priority since its start, back in 2013 when it was spun off from Abbott Laboratories. Since then, it's grown its dividend a mind-boggling 285%. The company now pays a dividend of $6.20 per share, which represents a dividend yield of 4.29%, surpassing the 1.62% yield of the S&P 500.
The pharma company has continued to lift payments even now, as it's reached a difficult transition point: The company's top blockbuster lost exclusivity, opening it up to competition. At its peak last year, immunology drug Humira generated $21 billion in revenue, but these days, its revenue is on the decline as rivals offer cheaper alternatives.
AbbVie says that once earnings pick up, the company will further boost its dividend payments, and there's reason to believe this will happen. Here's why. AbbVie has prepared two newer immunology drugs -- Rinvoq and Skyrizi -- for potential approval in all of Humira's approved indications.
The company predicts they will actually surpass Humira's peak revenue in 2027. On top of that, AbbVie has a portfolio of top-selling drugs in other areas, from oncology to neuroscience.
Trading at about 12x forward earnings estimates, down from more than 14x earlier in the year, AbbVie looks like a buy right now.
2. Medtronic
Medtronic, with 46 years of dividend increases, is just a few years away from becoming a Dividend King -- a company that's lifted its dividend for at least 50 consecutive years. After so many years of Medtronic prioritizing dividend growth, it would be surprising if the company stopped now. So there's reason to be optimistic about collecting more and more passive income from Medtronic each year.
Plus, the company said in its recent earnings report that it aims to return at least 50% of free cash flow annually to shareholders. Right now, the medical-device giant pays a dividend of $2.76 per share with a yield of 3.50%, and that beats the yield of the S&P 500.
You'll like Medtronic for reasons beyond dividend growth, too. The company is a significant player in the medical-devices industry, with a presence in cardiovascular, neuroscience, diabetes, and medical surgical. Medtronic's growth slowed in recent years, but the company took action to transform the business by focusing on efficiency, divesting slower-growth businesses, and investing in high-growth technologies like artificial intelligence (AI).
Meanwhile, the stock trades for about 15x forward earnings estimates, down from 24 a couple of years ago -- even as growth is accelerating. Now is a great time to get in on this dividend story.
3. Pfizer
Investors have fled Pfizer stock because some of its top products are heading for declines. The coronavirus vaccine and treatment are posting decreasing sales due to lower demand at this later pandemic stage, and other blockbusters are losing exclusivity.
But here's why you shouldn't worry: As these declines and losses unfold, Pfizer is launching other new drugs that should compensate and even deliver further growth down the road. The company aims to launch 19 new drugs or indications over an 18-month period and already has completed 13. Pfizer says all of these new products could help the company deliver $84 billion in revenue by 2030.
On top of this, Pfizer is a great dividend stock to own. Growing the dividend is one of the three pillars of the company's capital-allocation strategy (the others are reinvesting in the business and making share repurchases). Today, Pfizer pays a dividend of $1.64 per share, representing a yield of 5.64%.
Pfizer shares have dropped 40% this year, and valuation metrics don't reflect the level of revenue the company may deliver several years down the road. But it's still fair to say, considering the huge wave of new products, that Pfizer looks like a top dirt cheap dividend stock to buy now.
