Over the long run, dividends can make a significant difference in your returns, whether you choose to reinvest the payouts or retain the cash for other purposes. However, many companies that offer dividends aren't exactly attractive to hold on to for a long time. Some have somewhat shaky underlying operations, and others are not inclined to regularly raise their dividends.
Thankfully, some income stocks on the market don't have these issues, and their shares are worth holding on to forever. Let's consider two examples: Amgen (AMGN -1.75%) and AbbVie (ABBV -0.98%).
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1. Amgen
If you're an income-seeking investor, Amgen has several qualities that you'll appreciate. First, it's a leader in healthcare, a defensive industry. The demand for the medicines that the company develops -- some of which are lifesaving -- won't stop even during economic downturns, nor will physicians stop prescribing them. Amgen is well equipped to perform regardless of economic conditions. The drugmaker generates consistent revenue and earnings.
Second, it continues to innovate. True, it has encountered clinical setbacks of late; its investigational weight management medicine, MariTide, didn't perform as well in mid-stage studies as expected. However, the company recently reported phase 3 results for bemarituzumab, a medicine it's developing for gastric cancer, the fifth leading cause of cancer death worldwide. This product now appears likely to secure regulatory approval and make a meaningful contribution to Amgen's results for a while.
The company will continue to face competition and patent cliffs, but it's been able to perform well over the long run despite these challenges, thanks to its innovative abilities.
Amgen can also rely on licensing deals and acquisitions to bolster its lineup and pipeline. In 2023, it acquired Horizon Therapeutics and its medicine for thyroid eye disease, Tepezza, for about $28 billion. Amgen has been able to push Tepezza's reach far beyond what the smaller Horizon would have been able to accomplish; it earned approval for the medicines in countries like Japan and Brazil, while pouring money into advertising and marketing efforts.
Third, Amgen has a strong track record of dividend payments. The biotech initiated a payout in 2011, and since then, it's increased its dividends every single year. It currently offers a forward yield of 3.1%, considerably higher than the S&P 500's average of 1.3%. And the cash payout ratio of 46.5% appears reasonable, leaving ample room for further payout increases.
Amgen's ability to develop novel lifesaving medicines, its consistent financial results, and its regular payout increases make it a top dividend stock to buy and hold for the long term.
2. AbbVie
Although AbbVie has lagged behind the market over the past three years, this period highlights the company's resilient qualities. After losing patent exclusivity in January 2023 for Humira, an immunology medicine that was its best-selling drug and also the most lucrative in the industry's history, management predicted that the company would return to top-line growth in 2025.
AbbVie resumed revenue growth last year, ahead of schedule. It's not rare for drugmakers to go through several years of declining revenue following a major patent cliff, nor is it necessarily a cause for concern. AbbVie's ability to bounce back as quickly as it did speaks volumes about the strength of its underlying business, its ability to navigate competition -- biosimilar and otherwise -- and its long-term prospects.
True, the company encountered a significant setback when a seemingly promising candidate for schizophrenia called emraclidine, which it had gotten its hands on through an acquisition, failed mid-stage studies.
AbbVie has faced similar problems before and has bounced back. The company had bet on a cancer medicine called Rova-T to be a significant growth driver post-Keytruda. However, this medicine failed in the clinic. Instead, AbbVie is now relying on Skyrizi and Rinvoq, two immunosuppressants, to drive top-line growth. These medicines have surpassed its own expectations, and they should continue to be significant contributors for years to come.
The company has consistently found ways to overcome setbacks and challenges. Its financial results remain robust; the pipeline is deep; the balance sheet is strong. And its dividend track record is outstanding: AbbVie is a Dividend King, boasting 53 consecutive years of payout increases. Its forward yield now tops 3.4%, while the cash payout ratio of 61.8% is still reasonable.
This is another dividend stock that you could safely include in a long-term portfolio.
