With the S&P 500 once again in negative territory for the year, companies of all sizes have seen their share prices decline. When a stock that pays a strong dividend goes down, it has the happy effect of pushing its dividend yield even higher, which can create a nice buying opportunity for long-term investors who want to add income to their portfolio.
However, just because a stock's yield gets pushed higher doesn't mean that it's an automatic buy, as some equities that come with high yield also come with higher-than-average risk and hence require constant monitoring. In our never-ending quest to help investors demystify the markets, we asked three of our Motley Fool contributors to share their suggestions of high-yielding stocks that they think don't require constant attention. Read on to see which stocks they think fit that description to a T.
George Budwell: Pfizer (NYSE:PFE) is one of my favorite names among high-yield dividend stocks because the drugmaker has strong positive free-cash flows, a reasonable cash payout ratio, a solid balance sheet, and several exciting growth platforms.
With a current yield of 3.57%, Pfizer's dividend yield tops the healthcare sector's average of 2.47%, as well as the 3.26% average among major drug manufacturers. Even so, Pfizer's remarkable ability to generate positive free cash flow -- over $15 billion in over the last 12 months -- has kept its cash payout ratio within reason at 50%. That's significantly lower than many of Pfizer's big pharma peers, who are struggling to cope with the ongoing patent cliff.
Perhaps what's most reassuring, though, is the fact that Pfizer exited the third quarter of 2015 with over $20 billion in cash, cash equivalents, and short-term investments. As a result, Pfizer sports a fairly healthy balance sheet with a long-term debt-to-equity ratio of 58%. While that may sound sort of high, it's markedly lower than the sector average of 68%, according to data provided by S&P Capital IQ.
On a final note, Pfizer's quickly moving past its own problems with the patent cliff through the launch of several new products such as Prevnar 13, Ibrance, and Eliquis. Those three growth products, for example, helped to drive a 21% surge in sales within the company's innovative products business, on an operational basis, in the third quarter. As such, Pfizer's future appears to be on solid ground moving forward.
Todd Campbell: Finding high yielding dividend stocks that don't require a lot of investor attention can be tricky. Focus too much on high dividend yields and you might get stuck owning shares in a company whose business is risky. Alternatively, pick a company with a low dividend yield and your annual payout could be tiny.
In order to avoid falling into either of these two traps, investors have to strike a Goldilocks-like balance between risk and yield, and one company that appears to me to do that is Merck & Co (NYSE:MRK).
Merck is one of the world's biggest drugmakers, with annual sales and profits last year of more than $42 billion and $11.9 billion, respectively. The company, however, has had some struggles due to patents expiring on its top-selling medicines, and that's why its dividend yield of 3.34% is a bit higher than some of its peers.
The good news, however, is that despite those patent expirations, Merck's quarterly dividend payment has still climbed. Launches of new drugs such as cancer treatment Keytruda, as well as a massive restructuring that's lopping off $2.5 billion in annual expenses, should give Merck enough insulation against future patent expirations to allow for additional dividend increases in the future.
Brian Feroldi: One high-yielding dividend stock that I like right now is pharma giant AbbVie (NYSE:ABBV). Although the company reported solid earnings, its stock has trailed the market by more than 8% since the start of the year, which could make right now a good time to pick up a few shares of this steady grower.
AbbVie recently released its long-term strategic plan and outlined its corporate objectives from now until 2020, and if the company can achieve those objectives, its future is certainly looking bright. AbbVie's management believes it should be able to grow total sales to $37 billion by 2020, which would be a solid increase from the roughly $22 billion it generated over the past 12 months.
AbbVie expects to achieve that growth largely on the backs of its blockbuster drugs Humira and Imbruvica, which the company believes will generate annual sales of $18 billion and $5 billion, respectively, by 2020. In addition, the company plans on launching north of 20 new products or expanding indications for current drugs over the next five years. The company believes that these new products and indications could deliver nearly $30 billion in peak sales combined.
AbbVie is looking to get more efficient as well; it has laid out plans to steadily improve its operating margin by 100 to 200 basis points each year, which would bring its operating margin to north of 50% by 2020. Between strong sales growth and a more efficient cost structure, AbbVie believes that it should be able to deliver double-digit EPS growth over that time period. Better yet, the company plans on passing a hefty amount of that cash back to its shareholders in the form of an ever-growing dividend.
AbbVie sees its 2016 adjusted EPS coming in between $4.90 and $5.10, which means that despite offering investors a plan for solid long-term growth, its shares are trading today for only 12 times forward earnings. Meanwhile, the company also offers investors a juicy 3.78% dividend yield that is nearly double the market average. That makes for a nice combination, which means that AbbVie is a high-yielding stock that also scores points on the "sleep well at night" factor.
Brian Feroldi has no position in any stocks mentioned. George Budwell owns shares of AbbVie. Todd Campbell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.