A good incentive for buying a strong dividend stock that’s underperforming is that you can secure a higher yield. As long as the business’s fundamentals remain sound, you can benefit from the better-than-usual payout as well as from the potential capital appreciation it generates if the stock rebounds and rises in value.
Two relatively cheap healthcare stocks offering above-average yields and that are trading near their 52-week lows are Pfizer (PFE) and AbbVie (ABBV). Here’s why you should consider investing in them today.
1. Pfizer
In the past year, shares of Pfizer fell 14%, which is worse than the S&P 500 (down around 7%). Investors are bearish on the healthcare company’s prospects as it looks to try and offset the inevitable decline in COVID-19-related revenue. While its vaccine (Comirnaty) and medication (Paxlovid) will still generate revenue for the business this year, the drop-off is enough for Pfizer to project that its total revenue will drop by around 30% this year, to no more than $71 billion (sales topped $100 billion in 2022).
But for income investors, there isn’t a serious concern about the dividend. This year, Pfizer expects its adjusted diluted earnings per share to be at least $3.25 — nearly double the $1.64 it pays in dividends over the course of a full year. The stock yields 3.7% right now, a full 2 percentage points higher than the S&P 500 average of 1.6%.
Pfizer stock is trading at just 13 times its future earnings (the average healthcare stock trades at a multiple of 17). If you’re looking for a solid income stock to own, this one could make for an underrated buy.
2. AbbVie
Another stock investors are not enthused about these days is AbbVie. The company’s top-selling rheumatoid arthritis drug Humira is losing a level of patent protection, and this year, its sales could nosedive by as much as 37% due to rising competition from newly introduced biosimilars. That’s a potentially huge hit for a product that represents such a big part of the business. During the last three months of 2022, Humira’s sales totaled $5.6 billion, accounting for nearly 37% of the company’s total net revenue of $15.1 billion.
As is the case with Pfizer, AbbVie is facing some headwinds, but they shouldn’t affect its ability to pay dividends. And with a yield of 3.9%, AbbVie offers its investors an even higher return than Pfizer. The stock price recently rallied but it remains near its 52-week low of $134.09. Its forward price-to-earnings multiple of 13 is also in line with Pfizer’s. Picking up one or even both of these stocks can be a great move for investors in the long run.
— David Jagielski
46-Year-Old CEO Bets $44.2 Billion on One Stock [sponsor]Netflix is NOT the future of entertainment. It's only a small fraction. And one billionaire CEO is taking charge of what Netflix DOESN'T do and leading the way for the next generation of entertainment. His forward-thinking company, which many people haven't even heard of yet, doesn't only want to compete with Netflix... It wants to rule the world...
Source: The Motley Fool