Growth stocks are the rage on Wall Street lately. Tech standouts like Microsoft, Nvidia, and CrowdStrike are regularly reaching new all-time highs. Microsoft and Nvidia pay token dividends, but the yields are well under 1%. I love growth stocks like these, but adding high-quality dividend stocks to a portfolio is also a terrific idea.
Here are a few advantages of dividend stocks:
- Regular income. Getting a nice quarterly deposit is a great money source to pay bills, enjoy some extras in life, or reinvest.
- Less stress. Dividend stock investors don't have to worry as much about short-term stock price gyrations. As long as the company is strong, the income will still arrive, and the stock should do well in the long term.
- Great for retirees. Dividend stocks are excellent if you want extra income in retirement. Unlike growth stocks, you don't have to sell shares to receive cash.
- Companies that pay dividends are typically in solid financial shape.
Here are a couple of investment suggestions, whether it's $10,000 or much more or less.
AbbVie
Most people might know AbbVie (ABBV +0.56%) as the maker of the blockbuster drug Humira. Humira is among the highest-grossing prescription drugs ever, with peak sales eclipsing $21 billion in 2022. After 2022, biosimilars hit the market in Europe and then the U.S. last year. Humira sales have dropped considerably and will continue to fall due to the lower-priced options. However, AbbVie has prepared for this eventuality for years by acquiring and developing new products.
AbbVie's next blockbuster combo is Skyrizi and Rinvoq, which is expected to reach $16 billion in sales this year and easily outpace peak Humira sales by 2027, as shown below.
Image source: AbbVie
AbbVie also has a robust aesthetics portfolio headlined by Botox and Juvederm and a neuroscience lineup featuring Botox Therapeutic and Vraylar, among others. Perhaps the most exciting long-term development is the recent acquisition of ImmunoGen. ImmunoGen's draw is its oncology product, Elahere. This drug is currently approved for one type of ovarian cancer treatment, and AbbVie has several clinical trials underway to expand its use. These are all reasons why AbbVie's management expects sales to grow close to 10% compounded annually through 2029.
As shown below, AbbVie has raised its dividend annually since it became a public company in 2013, and the current yield of 3.6% is near its average.
ABBV Dividend Yield data by YCharts
AbbVie has historically been a terrific dividend stock, and all indications are that this will continue into the foreseeable future.
Starbucks
Starbucks (SBUX 1.16%) faces tremendous challenges, including geopolitical issues in China, the rise of independent coffee shops, and slowing consumer spending. However, as Warren Buffett says, it's often best to buy companies when others run the other way. And others are definitely fleeing as the price retreats to near five-year lows, pandemic crash notwithstanding.
NASDAQ: SBUX
Key Data Points
The most recent earnings release, for the second quarter of fiscal 2024, ended March 31, highlights the challenges above. Comparable sales fell 4%, led by an 11% dip in Chinese sales, which caused a steep sell-off in the stock price. Total revenue for the quarter hit $8.6 billion on a 2% year-over-year decline.
Despite the challenges, Starbucks is still a highly profitable business. Through Q2, it produced $2.6 billion in operating income and $1.58 in diluted earnings per share (EPS). Operating cash flow is also strong, with $2.9 billion created through Q2 compared to $2.4 billion the prior fiscal year. Starbucks is an iconic global brand, has 33 million rewards members, and plans to increase this. For instance, it partnered with Bank of America to offer benefits to mutual cardholders. The current hurdles and steep stock price decline may be a fantastic long-term opportunity.
Just how inexpensive is Starbucks stock on a historical basis? The dividend yield is near its highest point in 10 years (even counting the pandemic) and well above its average, as shown below.
SBUX Dividend Yield data by YCharts
All indications are that 2024 is going to be a tough year for Starbucks. However, consider buying the sleeping giant, enjoying the dividend, and holding until it awakens.
