There are many dividend stocks on the market. Some will eventually cut or suspend their payouts due to company-specific, economic, or broader market issues. Those aren't the kind of dividend stocks that investors will want to own. Instead, income-seekers should try to find corporations with excellent underlying businesses that are likely to maintain their dividend program for a long time.
Find out why three Motley Fool contributors picked Eli Lilly (LLY +2.55%), AbbVie (ABBV 0.34%), and Novartis (NVS +1.50%) as excellent passive income stocks investors can safely hold.
Growth and dividend investors need not look elsewhere
Prosper Junior Bakiny (Eli Lilly): Few pharmaceutical companies have made as much noise as Eli Lilly over the past few years. The company is proving to be an innovative powerhouse with important approvals such as Mounjaro in diabetes, Zepbound in obesity, and, potentially, donanemab, which could earn the nod in treating Alzheimer's disease.
NYSE: LLY
Key Data Points
Eli Lilly's financial results may have been somewhat inconsistent in the past two years, but that was because of its up-and-down coronavirus-related sales. Now that this market is no longer impacting its top-line growth, the company should be in a straight northbound march for years. Eli Lilly is one of the most attractive businesses -- and growth-oriented companies -- in the industry, and that's what makes it an attractive option for dividend investors.
True, the company's forward yield of 0.67% isn't impressive. But that's because of how much the stock has gained recently. The dividend itself hasn't lagged behind. Eli Lilly has increased its payouts by just over 100% in the past five years. The company shouldn't stop there. Thanks to the slew of new approvals it landed, analysts predict that Eli Lilly's earnings per share (EPS) will grow at an average of 56% in the next half-decade.
Try finding a pharmaceutical giant whose projected EPS growth even approaches this total. There aren't many, if any. Eli Lilly will make a lot of money, some of which it could, and certainly will choose, to return to shareholders. So, investors can sit back and enjoy the ride as Eli Lilly delivers incredible top and bottom-line growth, market-beating returns, and an attractive dividend program.
A Dividend King with solid growth prospects
Keith Speights (AbbVie): You won't find many stocks with a better dividend program than AbbVie. The drugmaker is a Dividend King with 52 consecutive dividend increases (including the years it was part of Abbott). Over the last 10 years, AbbVie has grown its dividend by 269%. Its dividend yield currently stands at nearly 3.8%.
NYSE: ABBV
Key Data Points
While AbbVie has been and will almost certainly continue to be a passive income machine, there's more to like about the stock than only its dividend. The company has perhaps surprisingly good growth prospects, considering that sales of its best-selling blockbuster drug, Humira, are rapidly declining due to generic competition.
AbbVie expects to return to solid sales growth next year. It projects a high single-digit revenue compound annual growth rate through the rest of the decade. Two successors to Humira -- Rinvoq and Skyrizi -- are key to this anticipated growth. AbbVie's guidance is for over $27 billion in combined sales from the therapies by 2027. That's well above what Humira generated at its peak.
The big biopharmaceutical company also has other growth drivers. Sales for the antipsychotic drug Vraylar are expected to approach $5 billion annually. AbbVie's migraine therapies should top combined sales of $3 billion at their max. The drugmaker's aesthetics portfolio sales should vault above $9 billion by 2029.
We can't leave out AbbVie's dealmaking efforts. The recent acquisition of ImmunoGen and the pending buyout of Cerevel Therapeutics will add several potentially big winners to AbbVie's lineup.
Novartis is a dependable growth stock with a high yield
David Jagielski (Novartis): One healthcare stock that makes for a top income investment right now is Novartis. The Swiss-based pharmaceutical company has strong financials, pays a high dividend, and is always in the pursuit of more growth.
NYSE: NVS
Key Data Points
If you buy the stock today, you'll be locking in a dividend yield of 3.9% -- that's nearly three times the S&P 500 average of 1.4%. The company has also been rewarding its shareholders with regular increases; Novartis has raised its dividend payments for 27 consecutive years.
In each of the past four years, the company has generated free cash flow of at least $11 billion, which is far higher than the $7.3 billion it paid out in dividends in 2023, giving Novartis plenty of a buffer to balance both dividend payments and growth initiatives.
Last year, the company spun off its generic and biosimilars business, Sandoz, in order to focus more on growth. And until 2027, Novartis anticipates that it can generate annual growth of 5% per year. In 2023, Novartis reported $46.7 billion in annual sales, which was 7% higher than the $43.5 billion it reported in the previous year. The company has many exciting drugs in its portfolio, including breast cancer drug Kisqali, which may generate peak sales of $4 billion.
As Novartis continues to grow its operations and cash flow, there will be more room for the company to continue to distribute more money out to its shareholders. At only 13 times its estimated future earnings, Novartis is a low-priced stock which can generate plenty of recurring income for investors who are willing to hang on for the long haul.
