Do you want to add a good income-generating investment to your portfolio? There are many high-yielding stocks that you can buy now at attractive discounts. And in addition to generating plenty of dividend income for your portfolio, these investments also have the potential to produce significant profits for you in the long term.
Three absurdly cheap dividend stocks trading today at a modest multiple of their expected earnings Merck (NYSE:MRK), Gilead Sciences (NASDAQ: GILD)And Novartis (NYSE: NVS). If you’re looking for stocks that you can buy and hold for years, these are excellent options to consider.
Pharmaceutical titan Merck pays investors a dividend that yields 2.8% – more than double S&P500 average 1.3%. And based on analyst expectations, it’s also incredibly cheap, with a price-to-earnings ratio of less than 11.
Investors are discounting the stock slightly because of its high exposure to the cancer-fighting drug Keytruda; The country faces a patent cliff later this decade, leaving investors worried about Merck’s growth prospects.
But the company is innovating, and regulators recently approved Winrevair for pulmonary arterial hypertension. At its peak, the drug could bring Merck more than $6 billion in revenue. The company also expects its cardiovascular portfolio alone to generate $10 billion by the end of the decade.
While another drug like Keytruda (which generates more than $20 billion in annual sales) may not be in Merck’s portfolio right now, by investing in more growth opportunities and expanding its pipeline, the company remains on a positive path forward.
There is some risk, as is always the case with large patent cliffs, but Merck still has time through acquisitions and pipeline expansion to strengthen its prospects. And Keytruda’s revenues won’t suddenly go to zero once the patents expire.
For long-term investors, Merck is an attractive investment to get started with today.
Investors can secure shares with an even higher return at Gilead Sciences. It currently pays 3.6%, all while the shares have been rising in recent months and are now trading around their 52-week high. Before that, the yield was even higher.
Gilead is a leading company in HIV treatment, and its focus on that area of healthcare ensures that it has a stable and steady business on which to build. HIV remains a major healthcare problem, but Gilead could play an important role in helping prevent infections.
In a recent study, the twice-yearly injectable treatment, lenacapavir, demonstrated 100% efficacy. The company says this was the first Phase 3 trial for HIV prevention in which there were no infections.
Not only does the future look promising for Gilead, but its core business is solid today, with the company reporting $1.1 billion in profit in the trailing twelve months on revenue of $27.8 billion.
Given the potential for lenacapavir and Gilead’s expansion of its oncology business and portfolio of liver disease drugs, this could leave shares undervalued over the long term, even for growth investors. With a forward price-to-earnings ratio of 12, it is once again an attractively priced investment.
The list of high-yielding stocks is completed by Swiss pharmaceutical giant Novartis, which pays out 3.2% per year in dividends. It’s the most expensive stock on this list, with a price-to-earnings ratio of 14. But even that’s still incredibly cheap for a healthcare stock with solid and steady growth prospects.
The company expects revenue growth of at least 5% per year until 2027. And with strong results this year, Novartis recently upgraded its 2024 forecast and now expects to deliver double-digit earnings growth. The company is experiencing strong growth with its top drugs Entresto (heart failure) and Cosentyx (arthritis).
Excluding just the top 20 brands, the company achieved sales growth of almost 18% in the first half of this year (at constant exchange rates).
Novartis’ strong 30% profit margins put the company in a prime position to significantly grow its top line and revenue as it develops new drugs and strengthens its pipeline through acquisitions, making this yet another undervalued stock.
Consider the following before buying shares in Merck:
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Gilead Sciences and Merck. The Motley Fool has a disclosure policy.
3 Absurdly Cheap Stocks That Pay High Dividends was originally published by The Motley Fool
