Investors looking for stocks that can outperform want to turn their attention to dividend payers, regardless of whether they're interested in building a passive income stream. Companies that pay dividends tend to outperform those that don't, and the differences are dramatic.
From 1973 through 2024, the average dividend-paying stock in the benchmark S&P 500 index delivered a 9.2% annual return. Non-dividend-paying stocks in the same index produced a measly 4.3% annualized return over the same time frame, according to Hartford Funds and Ned Davis Research.
The past 12 months have been relatively rough periods for Novo Nordisk (NVO 2.06%) and Realty Income (O 0.72%). Shares of the real estate investment trust (REIT) are down by 10% from the peak they set last fall. Novo Nordisk has fared much worse. Its stock has been beaten down more than 60% from a peak it set last year. Here's why most investors would do well to buy both while they're down and hold them for at least a decade.
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1. Novo Nordisk
Novo Nordisk's lead drug, semaglutide, is the injectable glucagon-like peptide-1 (GLP-1) receptor agonist marketed as Ozempic for diabetes and as Wegovy for weight management. The Denmark-headquartered company also markets an oral version of semaglutide for diabetes patients under the brand name Rybelsus.
The Food and Drug Administration is reviewing an application that could make an oral version of semaglutide for weight management available before the end of 2025. The stock has been under pressure because semaglutide has been losing market share to a younger, more effective treatment called tirzepatide from Eli Lilly.
Lilly's tirzepatide is another GLP-1 drug that acts on glucose-dependent insulinotropic polypeptide receptors, too. Its dual mode of action makes it better at weight reduction, but it's also harder to tolerate. Obesity patients can still achieve similar weight reduction targets with more easily tolerated semaglutide. It just takes longer.
Eli Lilly's tirzepatide will probably outsell semaglutide, but it isn't going to replace Novo Nordisk's lead drug completely. Despite the competition, Novo Nordisk's business is growing fast. Management expects operating profits to rise by 10% to 16% in 2025.
American investors will find Novo Nordisk's dividend program annoying but worth the hassle. Instead of equal quarterly payments, it declares one large annual payment and a lower interim payment in its native currency.
If this year's payments fall in line with last year's, investors who buy at recent prices would receive a 3.2% yield. A much higher payout seems likely. Dividend payments made in 2024 were 120% higher than the payments it distributed in 2020. Management expects operating profits to grow by double digits this year. This should translate to plenty of cash that it can use for a large payout bump.
2. Realty Income
If you're interested in more frequent payments that rise steadily, consider Realty Income stock. This net lease REIT has been delivering monthly payments since it acquired its first property in 1970.
Realty Income has raised its dividend payout 131 times since it went public in 1994. Its dividend isn't growing as quickly as Novo Nordisk's, but it has risen by 3.9% annually over the past decade. That's more than enough to outrun the typical pace of inflation.
Rising Treasury yields make reliable dividend stocks less attractive. As a result, Realty Income's stock has been moving in the opposite direction from its dividend payout. At recent prices, the stock offers an unusually high 5.6% yield.
Realty Income should have no problem meeting its dividend obligation. In 2025, it expects adjusted funds from operations, a proxy for earnings used to evaluate REITs, to reach a range between $4.24 and $4.28 per share. That's heaps more than it needs to meet a dividend obligation currently set at $3.228 per share.
Realty Income develops properties, but sale-leaseback deals are a large part of its business. With a highly favorable A3 credit rating from Moody's, this REIT can generate profits while offering new tenants terms that its less-established competitors can't beat. This stock isn't going to be the market's greatest performer in any given year. Over time, though, steady gains could allow it to outperform the broad market. Adding some shares to a diverse portfolio now looks like a smart move for most investors.
