The S&P500(SNPINDEX: ^GSPC) has many winners in its ranks, which is why the famous stock market barometer has risen more than 31% since the beginning of 2024, as I write this.
Still, in any collection of hundreds of stocks, there are inevitably some laggards, and that’s the case with this closely watched index. As we prepare to put this year behind us, here’s a look at a now undervalued pair that has fallen in price year to date, yet continues to shower its investors with dividends. This is why I’m attracted to these two tarnished beauties: Pfizer(NYSE:PFE) And Nike(NYSE:NKE).
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In the somewhat topsy-turvy world of the pharmaceutical industry, a terrifying global health crisis could be a major boon to business. For example, during the height of the COVID pandemic, Pfizer was not only the co-developer of the widely distributed Comirnaty vaccine, but also the entity behind the popular drug therapy Paxlovid. This one-two combination pushed sales and profitability to stratospheric levels during those otherwise difficult times.
That was then, this is now. For investors, it was a matter of, “What have you done for me lately?” with Pfizer. Comirnaty and Paxlovid are tough acts to follow, and both the company’s top and bottom lines have fallen from their pandemic peaks.
Complementing Pfizer’s challenges, activist investor Starboard recently purchased an anchor stake, and has since been advocating for change in a pull-no-punches, activist investor-style manner. Starboard essentially argues that Pfizer’s strategy to acquire promising drugs is pricey and has not produced meaningful results.
I look at it differently. The pharmaceutical development process is arduous and resource-intensive, so for a deep-pocketed entrepreneur like Pfizer, it often makes sense to buy products that have already traveled far down the pipeline. I think the deal the company has made has been sensible, such as when it struck a $43 billion deal late last year to acquire cancer-targeted biotech Seagen.
Pfizer left Starboard with a bit of egg on its face with the third-quarter results it unveiled in late October. Again, COVID is still a threat, and luckily for the world – and for Pfizer’s investors – Comirnaty and Paxlovid were ready for the fight. Revenues for both rose year-over-year, helping the company to a monster 31% profit improvement (to $17.7 billion) and a turnaround to non-GAAP (adjusted) profitability, to more than $6 billion.
As a company that regularly posts profits in the billions of dollars, you can rest assured that there is usually enough cash available to fund Pfizer’s dividend. Not only that, the company continues to declare dividend increases every year, and while these are typically incremental, they do add up. Today, combined with the dropped share price, Pfizer pays a high-yield dividend of more than 6%.
Quickly name a top sportswear brand!
Most likely your answer was ‘Nike’, as after many years it is still the most famous maker and supplier of cool shoes for every sport imaginable, and the clothing and accessories to match them. The company’s “swoosh” logo is instantly recognizable.
Few companies achieve such brand power. In the likely case this won’t reduce much, but this should keep Nike at the forefront for many people who like such products.
The company needs this now, because it has been in a slump for years. Former CEO John Donahoe shifted the company’s sales strategy to digital and direct sales, leaving the broad retail market. While this looked good on paper in these times of online everything, the move reduced Nike’s presence. This reduced the strength of the brand and, not coincidentally, resulted in weaker sales growth and even recent declines.
Donahoe no longer holds the position of CEO. Last month, Nike brought in 32-year company veteran Elliott Hill to replace him. Hill was a shoe and apparel manufacturer during its many glory years, when growth was robust and the brand was a choice among the top sportswear retailers.
At the very least, a change in strategy is coming, and I expect Nike will return to its previous methods of pushing products to third-party retailers. Innovation could also get a boost, as Hill certainly remembers how well the company did with memorably unique, proprietary goods like Air Jordans.
Meanwhile, despite sputtering growth, Nike has steadfastly stuck to its dividend-paying policy. Not only is it a reliable payer every quarter, it’s also a consistent lifter, having consistently announced dividend increases since 2004. Free cash flow has increased, providing ample room not only for the current payout, but also for future dividend increases. .
Dividend increases are usually announced towards the end of each calendar year, so we can expect Nike to announce another one soon. Currently, the company’s quarterly distribution is $0.37. This yields 1.9% at the current share price, well above the 1.3% average of the stocks that make up the S&P 500 index, making Nike a stock to buy.
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*Stock Advisor returns November 4, 2024
Eric Volkman has no positions in the stocks mentioned. The Motley Fool has and recommends positions in Nike and Pfizer. The Motley Fool has a disclosure policy.
2 Great S&P 500 Dividend Stocks Down Year to Date to Buy and Hold Forever was originally published by The Motley Fool
