Dividend stocks deserve special attention, especially given the current state of the economy. With inflation near 40-year highs in the United States, dividends can be an extra source of income for those in need. And since rising prices can eat away at investors’ returns, opting for automatic dividend reinvestment can help combat the damaging effects of inflation on your portfolio.
But what’s better than dividend stocks? Cheap dividend stocks. Let’s take a look at two companies to consider – both of which are excellent dividend-paying companies and look like steals at current levels: AbbVie (NYSE: ABBV) and Bristol Myers Squibb (NYSE: BMY).
1. AbbVie
The pharmaceutical giant AbbVie offers a dividend yield of 4.01%, significantly higher than that S&P500average of 1.27%. Additionally, the company is a Dividend King, meaning it has increased its payout for at least 50 consecutive years. The company’s total revenue for the third quarter increased 11.2% to $14.3 billion.
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Equally important, AbbVie’s business remains strong. First, the company’s rheumatoid arthritis drug Humira continues to generate growing sales despite competition from biosimilars in Europe. During the third quarter, global sales of Humira were $5.4 billion, an increase of 5.6% over the same period a year earlier.
AbbVie also has several products that will eventually replace Humira once it loses patent exclusivity in the United States next year. These include Rinvoq and Skyrizi, two drugs that treat several autoimmune diseases. Both are seeing their sales increase rapidly. In the third quarter, Rinvoq’s revenue more than doubled year-on-year to $453 million, while Skyrizi’s sales soared 83% to $796 million.
Other products vital to AbbVie’s future include its cancer drug Venclexta as well as its Botox franchise. Meanwhile, the company has a pipeline with several dozen ongoing clinical trials. Even a handful of approvals – which seems more than likely – should help the company bolster its lineup with label extensions or new products.
The need for life-saving medicines won’t go out of fashion anytime soon, making AbbVie’s business resilient to economic conditions. The company can face headwinds like all businesses, but over the long term, it is well positioned to reward shareholders through dividend increases and strong stock market performance.
AbbVie currently trades at just 9.5 times forward earnings compared to the pharmaceutical industry average price-to-earnings (P/E) ratio of 12.9. At these levels, AbbVie stock looks attractively priced. Investors looking for companies whose shares can be held for a long time should look no further than this top pharma stock.
2. Bristol Myers Squibb
Bristol Myers is another drugmaker that provides both value and revenue. With a dividend yield of 3.21% and a PER of 8, the company is above average in both categories. Bristol Myers’ business also appears solid, with a series of drugs generating robust and growing sales. In the third quarter, the company’s revenue increased 10% year over year to $11.6 billion.
The company had several drugs to thank for this performance, in particular the oncology products Opdivo and Revlimid and the blood thinner Eliquis. However, these three products will face patent expiration relatively soon. Revlimid will begin to face generic competition in the United States this year, while Opdivo and Eliquis will lose patent exclusivity in the United States in 2028 and 2026, respectively.
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Fortunately, Bristol Myers has a plan to deal with these headwinds. The company expects its portfolio of new products to generate between $20 billion and $25 billion in revenue in the coming years. Some of the group’s most promising include the anemia treatment Reblozyl, which could generate more than $4 billion in annual sales by 2029, the company says. Reblozyl was first approved by the United States Food and Drug Administration in 2019.
Other promising products include mavacamten, a potential treatment for a heart condition known as symptomatic hypertrophic obstructive cardiomyopathy. Mavacamten could gain regulatory approval this year, and Bristol Myers also expects it to eventually generate annual sales of at least $4 billion.
Another product Bristol Myers is working on is deucravacitinib, a potential treatment for plaque psoriasis that could gain the green light from regulators in the United States and Europe this year. These new drugs will only add to the other drugs in the Bristol Myers lineup.
That’s why despite the revenue losses it will soon incur due to competition from biosimilars for some of its best-selling drugs, the company remains an excellent long-term bet.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.
