Income investors love high dividend yields. Unfortunately, those yields often come with unacceptable trade-offs in the form of significant risk and/or low overall growth prospects. That's not always the case, though.
Three Motley Fool contributors think they've found some magnificent high-yield dividend stocks to buy in 2024. Here's why they picked AbbVie (ABBV 2.24%), Bristol Myers Squibb (BMY 1.73%), and Pfizer (PFE 0.05%).
Ride the storm with this excellent dividend stock
Prosper Junior Bakiny (AbbVie): Every good thing must come to an end. AbbVie learned that lesson the hard way last year when its blockbuster immunology medicine Humira ran out of patent protection in the U.S. The result was a steep decline in the company's sales and a rather unimpressive stock performance.
NYSE: ABBV
Key Data Points
Yet, AbbVie is still raising its dividend payouts. And as a Dividend King, it is now in its 52nd consecutive year of dividend increases. Management isn't too worried about the company's Humira-related issues and thinks the business can continue supporting a solid dividend program. That's partly because of AbbVie's two other immunology therapies, Skyrizi and Rinvoq, which are doing a decent job of filling parts of the gaping hole left by Humira.
It's also because of a broad lineup that includes AbbVie's Botox franchise. That's to say nothing of AbbVie's deep pipeline that boasts several dozen programs, some of which feature brand-new products. AbbVie thinks it will return to top-line growth in 2025. In the meantime, income-seeking investors should hold onto their shares of the company.
AbbVie's excellent track record and robust underlying business will be fine even in this post-Humira world. Meanwhile, the drugmaker offers a dividend yield of 3.88% -- well above the S&P 500's average of 1.62%. AbbVie's payout ratio of 42% is also pretty conservative and leaves enough room for more dividend hikes.
It seems clear that Humira's patent cliff did not sink AbbVie's business or its dividend program. The drugmaker remains a top income stock for 2024 and beyond, in my view.
An impressive streak of dividend hikes
David Jagielski (Bristol Myers Squibb): Pharma giant Bristol Myers Squibb is coming off a bad year in 2023, with its share price falling 29%. But this is still a growth-oriented business that has the potential to be a great long-term investment. It also pays a dividend which today yields an impressive 4.6%.
NYSE: BMY
Key Data Points
Bristol Myers raised its dividend last month by more than 5%. It marked the 15th straight year that the healthcare company boosted its payouts. And for 92 straight years, the company has paid a dividend. That's an incredible track record given all that has happened during that stretch, including wars, recessions, and many other challenges the business has had to endure.
Investors today, however, are discounting the stock heavily. In addition to a high debt load, the company is facing multiple patent cliffs for top-selling drugs, including Eliquis and Opdivo, which are losing patent protection this decade. And that has investors worried about its future; at just seven times its estimated future profits, Bristol Myers stock comes incredibly cheap today.
While the headwinds the company is facing are worrisome, there are still growth opportunities ahead for Bristol Myers. The company has a strong pipeline, and it estimates that by 2029, its new products will bring in $25 billion in new revenue. That's a big chunk for a business that generates about $45 billion in sales annually.
Bristol Myers' strong track record for growth and acquisitions and overall versatility over the years make this an incredibly underrated and potentially undervalued dividend stock to buy right now. Although there is some risk with the stock, it shouldn't be enough to deter investors from investing in one of the top healthcare companies in the world.
Oversold and overlooked
Keith Speights (Pfizer): Some might say that Pfizer's dividend is about the only thing going for it these days. I'll readily admit that the big drugmaker's dividend yield of nearly 5.8% is appealing. As great as Pfizer's dividend is, though, I don't believe for a second that it's the company's only redeeming quality.
Sure, Pfizer delivered a dismal stock performance last year. Its share price is now more than 50% below the peak set in 2021. Sales are declining. So are profits. Does that make Pfizer a lost cause? Nope.
NYSE: PFE
Key Data Points
Pfizer stock is oversold, in my view. Shares currently trade at only 13.2 times expected earnings and 2.5 times trailing-12-month sales. The company's problems stem from plunging demand for its COVID-19 products Comirnaty and Paxlovid. But even if Pfizer didn't make a penny from COVID, it would still be attractively valued compared to other big pharma stocks.
I also think that many investors are overlooking Pfizer's non-COVID growth prospects. The company projects that it will add $45 billion in new revenue by 2030. New drugs and new indications for existing products make up $20 billion of that total, with the remainder expected to come from business-development deals.
Those aren't pie-in-the-sky projections. Pfizer has already launched several new products, notably including multiple myeloma drug Elrexfio and RSV vaccine Abrysvo, that should help. It's also already enjoying a boost from business-development deals such as the acquisitions of Biohaven, Global Blood Therapeutics, and Seagen.
I'll admit that the future of Pfizer's COVID franchise remains uncertain. However, the stock is about more than just COVID. As a result, Pfizer looks like a magnificent dividend stock to buy this year.
