Cousin Eddie in the movie Christmas Vacation thought a one-year membership in the Jelly of the Month club was "the gift that keeps on giving the whole year." But for investors, there's an even better gift that keeps on giving: dividend stocks.
Three Motley Fool contributors believe they have identified magnificent dividend stocks to buy in October -- and all of them are drugmakers. Here's why they picked AbbVie(NYSE: ABBV), Amgen(NASDAQ: AMGN), and Pfizer(NYSE: PFE).
52 years and counting
Prosper Junior Bakiny (AbbVie): There are many factors to consider when looking for top dividend stocks. Here are three of the most important: a company's track record of dividend payments, its yield, and -- of course -- the strength of its underlying business.
AbbVie excels in all these categories. The drugmaker is on a streak of 52 consecutive years of dividend increases when considering the time it spent as a division of Abbott Laboratories(NYSE: ABT). That makes AbbVie a Dividend King. And since it split from Abbott in 2013, it has increased its payouts by 287.5%.
The company's forward yield also looks competitive. It currently tops 3.15%, compared to the S&P 500's 1.32%.
What about AbbVie's underlying business? Perhaps the best evidence that investors have nothing to worry about on that front is that despite losing patent exclusivity for Humira last year -- the best-selling drug in the history of the industry -- AbbVie returned to top-line growth in the second quarter. That's well ahead of the company's initial projections: Management thought revenue growth would return in 2025.
AbbVie can thank its strong lineup, including its Botox franchise, migraine treatment Qulipta, and the immunology heirs to Humira: Skyrizi and Rinvoq. Those last two drugs have been the company's biggest growth drivers.
Beyond the current lineup, the pipeline features dozens of programs, including existing medicines seeking label expansions and brand-new candidates. The company shouldn't have too much trouble earning new approvals and strengthening its portfolio over the years.
The business is well equipped to support regular dividend increases, just as it has in the past. That makes AbbVie a top dividend stock.
A high-yielding stock with a lot of upside
David Jagielski(Amgen): A solid dividend stock to buy this month is Amgen. The pharmaceutical company pays a decent yield of 2.8%, but that's only part of the reason it makes for a great buy.
Another reason is that the company has been aggressively growing its payouts over the years. Its current quarterly dividend payment of $2.25 is 55% higher than the $1.45 it was just five years ago. That averages out to a compound annual growth rate of 9.2%.
If the company were to maintain that pace, it would take approximately eight years for the dividend to double in value, giving plenty of incentive to stay invested in the company.
And there's more. Amgen also makes for a fairly cheap growth stock, with many blockbusters in its portfolio. At a forward price-to-earnings multiple of 16, it's a very reasonably priced investment.
The company also has an extremely promising weight loss treatment in development, MariTide, which might need to be taken only once a month. If it obtains approval, the pharmaceutical stock could have lots of upside given its modest valuation.
At worst, Amgen is a solid dividend growth stock, and at best, it also doubles as a fantastic growth stock with a lot of potential. Either way, it makes for an excellent income stock to buy right now and hold.
An ultra-magnificent dividend stock
Keith Speights (Pfizer): You won't find a pharma stock with a juicier dividend than Pfizer's. The big drugmaker offers an ultra-high forward dividend yield of 5.91%. That's a level that could cause some income investors to salivate.
But is that dividend safe? I think so. Granted, the company's dividend payout ratio of 443% looks concerning at first glance. This ratio uses earnings, though, that can (and do) fluctuate.
The more important number to focus on with its dividend safety is free cash flow. The company generated free cash flow of $3.44 billion over the last 12 months, according to the London Stock Exchange Group. It paid out $2.37 billion in dividends last year.
Pfizer shouldn't have any problems keeping the dividends flowing at current levels. I expect the company will continue its 15-year streak of payout increases as well.
Some might worry about Pfizer's sinking COVID vaccine sales and looming patent cliff. Not me. Yes, they're both big problems. However, I believe the worst is over on the COVID front. I also think the company's new products and its promising late-stage candidates should generate more than enough sales to offset the revenue declines resulting from patent expirations.
In addition, I'm optimistic about the prospects for Pfizer's experimental obesity drug danuglipron. This candidate is still in phase 2b testing for now. But if all goes well in clinical trials, danuglipron holds the potential to be a huge winner for Pfizer later this decade.
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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in AbbVie and Pfizer. Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, and Pfizer. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
