Recessions are hard to predict. Even professional economists sometimes get it wrong. But they will happen from time to time, and sometimes they will drag the stock market down. That’s why it’s beneficial for investors to buy stocks in companies that can do relatively well, even during recessions.
So which companies are worth investing in? Solid dividend stocks can be great choices. Their ability to maintain or even increase their payouts, regardless of economic conditions, says a lot about the strength of their underlying businesses.
With that in mind, let’s look at two dividend stocks that can help investors through the worst recessions: AbbVie (NYSE: ABBV) And Merck (NYSE:MRK).
1. AbbVie
There is a good reason that healthcare is considered a defensive industry. Many medical products and services are not luxuries. They are essential to people’s health and sometimes their lives.
That’s certainly true for pharmaceuticals, which are AbbVie’s core business. The company boasts a range of drugs including Skyrizi and Rinvoq in immunology, Venclexta and Imbruvica in oncology, Vraylar and Qulipta in neuroscience, and more. AbbVie can no longer rely on Humira, the world’s best-selling drug at its peak, to fuel growth. It lost its U.S. patent exclusivity last year.
The company’s financials, however, are pretty good, considering the circumstances. Second-quarter revenue was $14.5 billion, up 4.3% year over year. It’s not unusual for pharmaceutical companies to experience a few years of declining revenues after a significant patent cliff — and that’s not exactly cause for concern. AbbVie management initially predicted it would return to revenue growth by 2025. The company is well ahead of schedule, which says a lot about the company. AbbVie prepared for this ordeal in advance and is handling it about as well as we could hope.
Elsewhere, AbbVie’s pipeline includes dozens of ongoing clinical trials. It’s also bolstering its portfolio through acquisitions. It recently completed the $8.7 billion acquisition of Cerevel Therapeutics, a clinical-stage biotech focused on neuroscience. Whether through acquisitions or internal development, AbbVie has the tools to keep developing important medicines.
The current key growth engines, Skyrizi and Rinvoq, will collectively generate more than $27 billion in revenue by 2027 and continue to grow well into the 2030s, management says. For reference, combined revenue for Skyrizi and Rinvoq was $11.7 billion last year.
What about AbbVie’s dividend status? The company has increased its payouts for 52 consecutive years, including its time under the wing of Abbott Laboratoriesits former parent company. AbbVie’s forward yield is currently over 3.16%, compared to the S&P 500‘s average of 1.32%.
The pharmaceutical company is one of the best stocks to hold during a recession as it is likely to continue to post strong sales and profits while continuing to pay a dividend.
2. Merck
Merck is also a leading drugmaker. The company’s best-selling drug, Keytruda, overtook Humira as the world’s best-selling. This great growth engine still has a lot of life left in it, with dozens of indications for many different types of cancer in several countries. In the second quarter, Merck’s sales of $16.1 billion were up 7% year-over-year. Keytruda’s sales of $7.3 billion were up 16% year-over-year. It’s true that Keytruda’s patent expires in 2028.
The company, however, appears increasingly ready. Merck is working on a subcutaneous version of Keytruda that will take over some of the drug’s indications. Research firm Evaluate Pharma sees this version of Keytruda as one of the industry’s most promising pipeline programs, potentially generating as much as $8 billion in revenue by 2030. While it won’t replace all — or even most — of what Keytruda currently generates, Merck will be relying on other products.
That includes Winrevair, a drug recently approved to treat pulmonary arterial hypertension. Merck’s massive pipeline, particularly in oncology, should also yield many more brand-new drugs. While sales will almost certainly decline once Keytruda’s patent expires, the healthcare giant has the tools to recover and thrive long afterward. Merck also has a strong dividend track record.
It has increased its payouts by 75% over the past decade and currently offers a forward yield of 2.65%. A recession is unlikely to break Merck’s business or its dividend streak.
Should You Invest $1,000 in AbbVie Now?
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories and Merck. The Motley Fool has a disclosure policy.
2 Dividend Stocks You Can Safely Hold During a Recession was originally published by The Motley Fool
