Searching for investments that can outperform the benchmark S&P 500 index often gets wickedly complicated. If you're new to the investing process, you'll be glad to learn that building a portfolio that can outperform the broad market isn't as difficult as it seems.
Filling your portfolio with top dividend-paying stocks doesn't guarantee great returns, but you'd have to be unlucky to underperform this way. From 1973 through 2023, the average dividend-paying stock in the S&P 500 index delivered a 9.17% annual return. Stocks in the same index that lacked dividend programs produced a paltry 4.27% average annual return over the same time frame, according to Hartford Funds and Ned Davis Research.
Investors looking for stocks that can deliver satisfying returns with limited risk want to turn their attention to Bristol Myers Squibb (BMY 0.16%) and AT&T (T 0.40%). Just $100 is enough to buy shares of both dividend-paying stocks, and you don't have to wait long before they deliver significant levels of passive income. Both offer above-average yields now, and they're well positioned to grow their dividend payouts.
Bristol Myers Squibb
If you've had major surgery lately, there's a strong chance you also filled a prescription for Eliquis, a drug Bristol Myers Squibb markets in partnership with Pfizer. First-quarter sales of the blood clot-preventing tablet climbed 9% year over year to $3.7 billion.
NYSE: BMY
Key Data Points
Patent protections should keep generic competition away from Eliquis until at least 2028, and it is one of several Bristol Myers Squibb blockbusters with years of patent-protected market exclusivity ahead of it.
The company's growth portfolio contains 12 drugs that are younger than Eliquis, and their sales are soaring. The company's growth portfolio raised first-quarter sales by 11% year over year if we exclude the negative effects of a strengthening dollar.
Bristol Myers Squibb's growth portfolio expanded recently. On May 30, the Food and Drug Administration approved a new cell-based cancer therapy from the company called Breyanzi.
It's been 92 years since Bristol Myers Squibb started paying dividends and 15 years since it went over a year without raising its payout at least once. At recent prices, the pharma stock offers a 5.9% yield and a great chance to see the payout rise for another 15 years.
In the first quarter, Bristol Myers Squibb closed out acquisitions of Mirati Therapeutics, RayzeBio, and Karuna Therapeutics. All three are in late-stage clinical trials with experimental therapies that could eventually become blockbuster drugs with over $1 billion in annual sales.
AT&T
AT&T slashed its dividend payout in 2022 to compensate for the spinoff of its media assets. The share price of the telecommunications company has been under pressure since the dividend cut. At recent prices, the stock offers an attractive 6.3% yield.
NYSE: T
Key Data Points
AT&T lost a lot of broadband subscribers to rivals with 5G-powered fixed wireless services. Late last year, though, it launched its own fixed wireless service, and customers appear eager to sign up. The company added 110,000 AT&T Internet Air subscribers in the first quarter, and it was the third straight quarter with net additions for the broadband segment.
Declining equipment sales limited first-quarter mobility segment revenue growth to 0.1% year over year. While there isn't much that AT&T can drum up interest for the latest iPhone, investors should be encouraged by 741,000 net new wireless subscribers the company added during the first three months of the year.
AT&T generated $21.9 billion in free cash flow over the past 12 months. That's enough to cover a dividend commitment that is currently set at about $8.1 billion annually while significantly reducing its debt load.
AT&T finished March with $128.7 billion in net debt after repaying $4.7 billion during the first quarter. The company expects to reduce net debt to 2.5 times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first half of 2025.
AT&T hasn't laid out plans to increase its dividend. That said, I'll be surprised if the company doesn't begin raising its payout again after it achieves its debt reduction goal next year. Adding some shares of the high-yield stock to your portfolio now could result in heaps of passive income down the road.
