Not all dividend stocks are equal. Some are safer than others. Some have a much higher dividend yield than others. When a stock offers both benefits, it’s usually a keeper.
Three Motley Fool contributors found stocks with mouthwatering dividends that you can buy now. This is why they chose Gilead Sciences (NASDAQ: GILD), Organon (NYSE:OGN)And Pfizer (NYSE:PFE).
A safe, reliable dividend payer
Prosper Junior Bakiny (Gilead Sciences): When looking for solid dividend-paying stocks, high yield isn’t everything, but it’s certainly nice. Gilead Sciences, a leading biotech company, currently offers a yield of 4.80%, much higher than the S&P500‘s average of 1.35%. Gilead Sciences’ juicy returns are partly due to the fact that it has underperformed in recent years, but investors shouldn’t fear a dividend cut.
The drugmaker’s underlying business remains quite solid despite appearances. Gilead Sciences is one of the leaders in the HIV drug market thanks to drugs like Biktarvy, Descovy for PrEP (pre-exposure prophylaxis), Sunlenca and others. The company’s pipeline in this area includes many programs, including brand new products and potential label extensions.
Translation: Gilead Sciences should keep its lead in HIV for a while. That franchise is the company’s biggest growth driver, so it’s essential for Gilead Sciences to continue to innovate here. There is little reason for concern in that regard. However, Gilead Sciences is not just an HIV company. The company’s recent work in oncology shows significant progress. It also develops vaccines and drugs against the hepatitis B virus, various inflammatory diseases, etc.
Gilead Sciences’ greatest strength lies in its ability to develop newer and better medicines, including life-saving medicines. The need for this will not diminish any time soon. Gilead Sciences is therefore still well positioned to achieve strong results in the long term. The company’s payouts have increased by a whopping 79% over the past decade. Investors should expect biotechnology to maintain this momentum.
A high-yielding stock that has been quietly rising this year
David Jagielski (Organon): It has been three years since the healthcare giant stepped down Merck the spun-off Organon, which focuses on medicines aimed at women’s health. Organon has been paying dividends ever since and has slowly become a reliable income stock today. And right now it’s yielding 5.4%. That’s even as shares are up more than 40% this year.
Organon hasn’t increased its dividend, but that could be a possibility given its low payout ratio of around 30%. In its most recent quarter, which covered the first three months of the year, the company reported that earnings per share rose 11% to $0.78 – well above the $0.28 it pays to shareholders per quarter.
This year, the company expects revenue to be between $6.2 billion and $6.5 billion, which would imply modest 1% revenue growth at the midpoint. Merck spun off Organon so that it could focus its core activities on growth. Organon isn’t a fast-growing company, but it is a solid dividend stock. And with a few years of experience and Organon proving it can generate consistent free cash flow and profits, investors are taking notice – hence the stock’s rally so far in 2024.
If your primary goal is a good dividend stock, Organon seems like an excellent option. It’s also cheap: It trades at just five times earnings with a price-to-sales ratio of less than one.
The dividend is not the only thing that is attractive about this stock
Keith Speights (Pfizer): Income investors will likely be immediately attracted to Pfizer’s forward dividend yield of over 5.8%. They’ll like even more that the major drugmaker is committed to maintaining and growing its dividend. But the dividend isn’t the only thing attractive about this stock.
Believe it or not, Pfizer could offer solid growth in the coming years. That may be surprising given the challenges the company faces. Sales of Pfizer’s COVID-19 products are declining. Several of the best-selling drugs will lose their patent exclusivity in the coming years. Admittedly, this is not an ideal growth formula.
However, I think the worst is over for Pfizer’s COVID-19 franchise. The possible launch of the company’s combination COVID flu vaccine next year could turn things around somewhat. Don’t expect Pfizer to return to the heady sales volumes of 2021 and 2022, but any improvement will help.
Unfortunately, Pfizer won’t be able to do much to prevent sales declines for its products, which face a looming patent cliff. The good news, however, is that the company has taken this inevitable scenario into account. It has invested in research and development and used its COVID-filled coffers to make multiple acquisitions in recent years.
As a result, Pfizer believes it will generate an additional $20 billion in revenue from new products and new indications by 2030. By then, the company also expects approximately $25 billion in new business development revenue (primarily acquisitions).
Is this improving outlook baked into Pfizer’s stock price? No. The stock trades at just 12.8 times forward earnings. Pfizer’s dividend is certainly attractive. But so does its growth potential and valuation.
Should You Invest $1,000 in Gilead Sciences Now?
Consider the following before buying shares in Gilead Sciences:
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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in Pfizer. Prosper Junior Bakiny has no position in any of the shares mentioned. The Motley Fool holds positions in and recommends Gilead Sciences, Merck and Pfizer. The Motley Fool has a disclosure policy.
3 Stocks With Mouthwatering Dividends to Buy Now was originally published by The Motley Fool
