Are you looking for reliable dividend-paying stocks that offer hefty yields and the potential to dramatically increase their payouts when you’re ready to retire? If so, these three stocks from the healthcare and financials sectors have you covered.
Right now, all three of these top dividend stocks offer returns above the 3% threshold that many investors find acceptable. More importantly, they have underlying businesses positioned for steady growth in the years to come.
AbbVie (ABVV 1.06%) is the biopharmaceutical company behind Humira, a top-selling drug for arthritis and psoriasis. The stock is offering an above-average yield of 3.8% right now, as Humira will no longer be on the best seller list. European sales of Humira have already collapsed in the face of competition from biosimilars that began a few years ago. Next year, biosimilars finally entering the US market will also weigh heavily on AbbVie’s revenue.
Despite Humira’s impending loss of exclusivity, AbbVie looks like a good dividend stock to buy now. Over the past decade, the company has reinvested the portion of Humira’s earnings that it does not distribute to shareholders back into its development pipeline. Some of these investments are starting to pay off big.
Rinvoq, a treatment for arthritis, and Skyrizi, a treatment for psoriasis, are growing so rapidly that they alone could offset losses from Humira. Both launched in 2019 and are already on track to generate $8.4 billion in annual revenue. Earlier this year, AbbVie management predicted that sales of Skyrizi and Rinvoq would top $15 billion in 2025.
A long list of prescription drugs has helped AbbVie generate an impressive $21 billion in free movement of capital over the past twelve months. The company only needed 45% of free cash flow generated from operations over the past year to meet its dividend commitment, suggesting it won’t struggle to increase the payment.
Medtronic (MDT 2.45%) is the world’s largest manufacturer of medical devices. It is also a Dividend Aristocrat who increased his payment for 45 consecutive years.
At recent prices, Medtronic offers a yield of 3.4%. It also offers the opportunity to own two companies for the price of one: in October, the company announced to investors that it would divest its patient monitoring and respiratory interventions businesses to a new company.
Separating respiratory interventions from patient monitoring will give Medtronic more time to focus on Hugo, an up-and-coming robot-assisted surgical system. In October, Hugo received CE marking which will allow the company to market it for the general surgery indication throughout the European Union. With a path to enter robotic surgery and other lucrative markets, this company could continue to increase its earnings for another 45 years.
Allied Financial (ALLY -0.17%) is the oldest fully digital bank in the world. It was originally a financial subsidiary of General Motorsso as you can imagine, he is the source of a lot of car loans.
Fear of a potential recession hammering auto sales is weighing on Ally and weighing on its stock price. As a result, stocks offer a juicy 4.6% yield at recent prices.
Ally Financial has increased its quarterly payout by 150% since it began paying a dividend in 2017. Despite the rapid increases, it has used less than 18% of free cash flow generated over the past year to meet its dividend obligation. With such a well-funded dividend program, it will take more than a temporary slowdown in auto sales to prevent Ally from sustaining its streak of annual payout increases.
Rapidly rising interest rates could reduce short-term profitability. Over the next few years, however, the spread between the rates Ally Financial pays on consumer bank deposits and the rates it receives from its lending products will widen significantly. This is the classic recipe for rapidly increasing bank profits.