The stock market is near all-time highs as Wall Street chugs through earnings season and eyes the end of the year just around the corner.
But not all stocks are hitting new heights. Some prominent dividend stocks have struggled, including AbbVie (ABBV +0.54%), Colgate-Palmolive (CL +0.40%), and Zoetis (ZTS +0.65%), which are currently down 11%, 29%, and 42% from their respective peaks.
It's not usually fun to buy stocks that are going down rather than up. Still, long-term investors willing to plug their nose and invest in high-quality companies when they aren't popular can do quite well as those stocks eventually rebound.
Here is why these struggling dividend stars are strong long-term buys to consider this month.
Image source: Getty Images.
1. AbbVie continues to deliver despite cool sentiment in the healthcare sector
Most healthcare stocks haven't been too hot this year, but pharmaceutical giant AbbVie is still just 11% off its all-time high. The company has navigated big changes in recent years after losing patent exclusivity on its former top-seller, Humira. The good news? It has filled that hole with two new blockbuster drugs in Rinvoq and Skyrizi.
A strong third quarter from those two products helped AbbVie grow sales by 9.1%, prompting management to raise the company's full-year earnings guidance. Additionally, AbbVie announced a solid 5.5% dividend hike, extending the company's growth streak to 13 years. AbbVie has raised its dividend every year since its spinoff from Abbott Laboratories.
NYSE: ABBV
Key Data Points
That growing dividend pairs well with a starting yield of 3%. Wall Street analysts currently estimate that AbbVie will grow earnings by an average of almost 15% annually over the next three to five years. Yet, the stock only trades at roughly 20 times its full-year earnings estimates. That valuation leaves plenty of room for AbbVie to generate shareholder gains as the business continues to grow.
2. Investors have neglected this defensive stalwart amid the tech stock rush
It's no secret that Wall Street has been all about technology stocks for the past several years. Sometimes, that means that defensive stocks, like consumer staples giant Colgate-Palmolive, get less attention from investors. The global toothpaste and hand soap giant is currently down 29% from its all-time high.
Colgate-Palmolive doesn't have explosive growth, but it's a remarkably consistent business. The company has raised its dividend for 62 consecutive years, and the stock's 2.7% yield means investors get solid dividend income from the jump. The business is highly profitable and efficient with its resources, generating an average ROIC (return on invested capital) of 30% over the past decade.
NYSE: CL
Key Data Points
The business will likely grow earnings at only a mid-single-digit pace moving forward, but its strength lies in its dependability. The stock has traded at an average price-to-earnings (P/E) ratio of 30 over the past 10 years due to that dependability, but that has dropped to under 22 times earnings today. Investors looking for a rock-steady stock should consider buying Colgate-Palmolive while it's on sale.
3. Zoetis is a compelling buy after its valuation has come back down to Earth
Another victim of the broad unpopularity of healthcare stocks this year, Zoetis has fallen a whopping 42% from its high. Zoetis is one of the world's leading animal healthcare companies. It develops and sells a range of pharmaceuticals and other treatment products for livestock and companion animals around the world.
Wall Street has highly regarded Zoetis since its 2013 separation from Pfizer. The company has produced solid revenue growth and has continued to increase its ROIC throughout the past decade, an indicator that the business is getting stronger. Zoetis has paid and raised dividends for 12 consecutive years and will likely continue to do so for the foreseeable future, as its dividend payout ratio is still just a third of its earnings.
NYSE: ZTS
Key Data Points
So, why has Zoetis fallen? For one, it did work through some negative headlines related to one of its drugs earlier this year.
That said, the primary culprit is probably its valuation. Zoetis traded at a P/E ratio of over 56 at its high, a steep price for a company analysts expect will grow earnings by about 10% annually over the next three to five years. That has fallen to under 25, its lowest P/E ratio since the stock began trading, and a far more reasonable price given its anticipated growth rate.
