High-yield dividend stocks are on the rise in anticipation of possible Fed rate cuts. While persistent inflation and possible Trump-era tariffs could complicate the Fed’s plans, there are several major dividend powers such as AT&T And Altria have performed better than the S&P500 this year.
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Two high-yield stocks continue to attract my investment dollars in this market. This is why these two high-yield dividend stocks deserve a closer look by income and value investors with a long-term outlook.
Pfizer (NYSE:PFE) is among the most reliable dividend payers in the healthcare industry, but recent issues have sent the stock down 13.8% this year. That decline has lifted its yield to an attractive 6.77%, while its valuation has fallen to just 8.3 times forward earnings. As a result, the drugmaker now offers the highest yield among major drugmakers and one of the lowest multiples in the space.
Wall Street’s skepticism focuses mainly on Pfizer’s recent takeover frenzy. The company has racked up $68 billion in debt by buying a host of next-generation drug developers, but some of these deals have already failed. For example, Pfizer recently pulled its sickle cell disease drug Oxbryta from the market, which was the centerpiece of its $5.4 billion acquisition of Global Blood Therapeutics in 2022.
To add fuel to the fire, markets have also become nervous about the possible nomination of vaccine skeptic Robert F. Kennedy Jr. by President Trump to lead the Department of Health and Human Services. While the potential impact on drug and vaccine approvals remains uncertain, investors have reacted negatively to the possibility.
Despite these headwinds, Pfizer’s move into oncology is starting to pay off. Cancer treatments drove a big chunk of the company’s 32% year-over-year operating growth last quarter, and the recent Seagen acquisition added a deep pipeline of promising therapies. Additionally, the drugmaker’s $4 billion cost-cutting program should help drive the debt reduction process and support future dividend payments.
With shares trading at all-time lows and dividend yields hovering around record highs, I see a bargain hiding in plain sight. While the debt burden requires attention, and smarter business development deals would be nice, Pfizer’s deep pipeline and growing cancer franchise make the 6.77% yield worth the risk in my opinion.
Philip Morris International (NYSE:PM) Shares are up 36.6% this year and are still yielding a healthy 4.2%. Despite having the lowest yield among the major tobacco stocks, the company’s aggressive push toward smoke-free products continues to attract my investment dollars.
The company is leading the tobacco industry’s shift away from cigarettes. Nearly 40% of sales now come from smoke-free alternatives, led by IQOS, a device that heats tobacco instead of burning it. Philip Morris doubled down on this strategy in 2022 by acquiring Swedish Match for $16 billion and adding Zyn nicotine pouches – a fast-growing tobacco-free alternative that has taken the US market by storm.
The transformation of the international tobacco giant is already showing tangible results. Net sales in the third quarter grew 8.4% from the same period a year ago, while operating margins exceeded 40% in the three-month period. Most importantly, smoke-free products are already generating higher unit sales than traditional cigarettes, suggesting that the company’s bold target of achieving two-thirds of smoke-free sales by 2030 may not be so far-fetched.
With a clear path to the future, I’m happy to accept Philip Morris’ lower yield for what appears to be a safer long-term dividend. After all, the company is not just about adapting to changing consumer habits, but also leading the change.
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George Budwell holds positions at Pfizer and Philip Morris International. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
2 High-Yield Dividend Stocks I Can’t Stop Buying was originally published by The Motley Fool
