I'm consistently investing in these two dividend-rich stocks that yield high returns.
I'm consistently investing in these two dividend-rich stocks that yield high returns.
High-yield dividend stocks are seeing an increase in popularity before potential Fed rate decreases. Challenges like persistent inflation and potential Trump-era tariffs could make the Fed's intentions harder, yet companies like AT&T and Altria are outperforming the S&P 500 in 2023.
Data from MO via YCharts
Two high-yield stocks have been attracting my investment income in this market. Let me explain why these two high-yield dividend stocks should be examined more closely by income and value investors with a long-term focus.
Pharmaceutical sector's highest yield
Pfizer (PFE -1.31%) is well-known for its dependable dividend payments within the healthcare sector, but a 13.8% drop in its stock value this year has raised its yield to an appealing 6.77% and lowered its valuation to 8.3 times forward earnings. This now makes Pfizer the high-yield leader among major drug manufacturers and one of the most affordable options in the sector.
Investor doubts primarily focus on Pfizer's recent acquisition spree. The company has amassed a $68 billion debt load through purchasing several next-generation drug developers, yet some of these deals have not panned out. For instance, Pfizer recently withdrew Oxbryta, a sickle cell disease drug, from the market, which was a key part of its $5.4 billion acquisition of Global Blood Therapeutics in 2022.
Furthermore, markets are uneasy about the prospect of President-elect Trump appointing vaccine skeptic Robert F. Kennedy Jr. as head of the Department of Health and Human Services. While the influence on drug and vaccine approvals remains unclear, the prognosis for Pfizer has been unfavorable.
nevertheless, Pfizer's transition into oncology is finally showing positive results. Cancer treatments contributed to last quarter's 32% year-over-year operational growth, and the recent Seagen acquisition has added a promising pipeline of therapies. Furthermore, Pfizer's $4 billion cost-saving plan should aid the deleveraging process and maintain future dividend payments.
With shares trading near historic lows and its dividend yield near a record high, I see an opportunity that's easy to oversee. The high debt level should be kept in mind, and smarter acquisition deals would be preferred. However, Pfizer's extensive drug pipeline and growing cancer business make its 6.77% yield a risk worth taking, in my opinion.
Future growth driven by reduced smoking
Philip Morris International (PM -0.47%) shares have skyrocketed 36.6% and still offer a healthy 4.2% yield despite having the lowest yield among major tobacco companies. The firm's proactive approach to reducing smoking through smoke-free alternatives continues to interest me.
Philip Morris drives tobacco firms' transformation away from cigarettes. Now, approximately 40% of its revenue comes from smoke-free alternatives, with IQOS, a device that heats rather than burns tobacco, leading the way. In 2022, Philip Morris furthered its smoke-free strategy by purchasing Swedish Match for $16 billion and incorporating Zyn nicotine pouches—a fast-growing, tobacco-free alternative that has revolutionized the US market.
Philip Morris's transformation is already yielding tangible results. Third-quarter net revenue increased by 8.4% compared to the same period in the previous year, while operating margins exceeded 40% for the three-month period. Furthermore, smoke-free products are already outperforming traditional cigarettes in terms of revenue per unit, indicating that the company's aggressive goal of generating two-thirds of its revenue from smoke-free products by 2030 might not be an unrealistic aspiration.
With a clear vision for the future, I am ready to accept Philip Morris's lower yield as a trade-off for what appears to be a safer long-term dividend. After all, the company is not only not shying away from adapting to consumer trends, but it is spearheading this change.
In light of the text, two sentences that contain the words 'investing', 'finance', and 'money' could be: "Investors seeking high yield and income from their investments might consider investing in stocks like Pfizer and Philip Morris due to their attractive dividend yields."
"To effectively manage their finances and maximize their returns, some investors are strategically allocating a portion of their money towards these high-yield dividend stocks."