The benchmark S&P 500 index keeps breaking new records thanks in large part to a handful of stocks at the top. Luckily for income-seeking investors, there are some highly reliable dividend stocks out there that haven't been swept up in the excitement.
Shares of Pfizer (PFE +0.51%), Ares Capital (ARCC 1.74%), and Bristol Myers Squibb (BMY 0.87%) are reasonably valued, with an average dividend yield of about 7% at recent prices. Moreover, there's a good chance that all three can meet their commitments and continue raising them for many years to come.
Pfizer
At recent prices, Pfizer offers a juicy 6% yield, supported by profit from sales of innovative new drugs. The company has raised its dividend payout for 15 consecutive years, and it looks capable of maintaining this streak for at least another decade.
NYSE: PFE
Key Data Points
Pfizer reinvested some of the enormous profit its COVID-19 products generated into new sources of revenue that can keep its needle moving in the right direction. For example, the $43 billion acquisition of Seagen in 2023 gave it access to four commercial-stage cancer drugs, including Padcev.
Last December, the Food and Drug Administration (FDA) approved Padcev for the treatment of newly diagnosed patients with advanced-stage bladder cancer. New patients tend to stay on therapy much longer than folks who have already relapsed, so this label expansion could add billions to Pfizer's top line in the years ahead.
In addition to Padcev's label expansion, the FDA also approved a record nine new drugs from Pfizer last year. With plenty of new revenue sources, another decade of steady dividend raises seems likely.
Ares Capital
Ares Capital is a business development company (BDC), which means it has to distribute nearly all its profits to investors as a dividend. This BDC's dividend hasn't risen in a straight line, but it is up by 26% over the past decade.
NASDAQ: ARCC
Key Data Points
At recent prices, the stock offers an eye-popping 9.2% yield and a good chance to see significantly more when you're ready to retire.
For decades, big American banks have been increasingly hesitant about lending to all but the largest businesses. As a result, Ares Capital and its BDC peers can always find midsize companies willing to accept relatively high-interest loans.
Ares Capital collected loan payments from 510 different companies in the first quarter. With an investment portfolio worth $23.1 billion, it's the largest publicly traded BDC. That means it has heaps of relationships with mid-market businesses and their private equity sponsors.
With plenty of potential borrowers to choose from, Ares Capital's underwriting department can focus on those most likely to repay their debts. At the end of March, just 0.7% of investments were on non-accrual status.
Bristol Myers Squibb
Bristol Myers Squibb is another large drugmaker, with a 15-year consecutive annual dividend-raising streak. At recent prices, the pharma stock offers a big 5.9% dividend yield and an excellent chance for further payout raises.
NYSE: BMY
Key Data Points
Shares of Bristol Myers Squibb are down largely because the company frightened investors with a drastically reduced earnings outlook for 2024. In February, management told investors it would earn between $7.10 and $7.40 per share this year. In April, the company slashed its 2024 earnings estimate to a range between $0.40 and $0.70 per share to account for $12.9 billion worth of in-process research and development expenses associated with recent acquisitions.
In the first quarter, Bristol Myers Squibb closed out acquisitions of Karuna Therapeutics, Mirati Therapeutics, and RayzeBio. Accounting for the acquisitions early is unusual, but it isn't a reason to avoid the stock.
In the first quarter, Bristol Myers Squibb's portfolio of more recently launched drugs grew sales by 11% if we ignore the negative effects of a stronger dollar. With potential contributions from recent acquisitions, there's a good chance this drugmaker will keep raising its payout for another 15 years. Adding some shares to an income-generating portfolio now looks like a smart move.
