Dividend-paying stocks are sensitive to interest rates. When rates fall, studies show that fund managers tend to migrate toward income-oriented stocks, particularly stocks with yields above the market average of 1.35%. S&P500.
Although there is considerable debate over when the central bank will begin cutting rates this time around, there are signs that the U.S. labor market, economy and underlying inflation could be slowing .
If this line holds, the Federal Reserve will likely respond by cutting rates sooner rather than later, which should be a boon for high-yielding dividend stocks.
Which high-yield stocks stand out as attractive buys heading into this event? Health Titans AbbVie (NYSE:ABBV) And Pfizer (NYSE:PFE) both offer shareholders exceptional returns, historically cheap valuations and a proven track record of creating value over long periods of time.
AbbVie: A Leading Dividend Growth Stock
AbbVie is a major dividend payer. In addition to its superb 3.87% yield, the company has also increased the size of its dividend checks by 10% per year over the past five years, in stark contrast to the average annual increase of 6% among major large dividend producers (author’s data).
Additionally, AbbVie shares trade at less than 15 times forward earnings, which also compares favorably to the S&P 500’s nearly 21 times forward earnings multiple. In short, the pharmaceutical manufacturer offers a high yield and a demonstrated commitment to increasing the payment to an above-average level. levels, and its price is attractive.
What’s the catch? AbbVie is handling the loss of market exclusivity for Humira, an immunology drug that was its main cash cow from 2013 to 2023. The positive side is that the company is handling its patent expiration well.
Sales of new immunology drugs Skyrizi and Rinvoq are off to a flying start, and neuroscientific drug Vraylar is performing better than expected since gaining a label extension for major depressive disorder in 2022.
Although investors will need to keep an eye on some late-stage immunology drugs from other drugmakers, AbbVie appears to be deeply undervalued as it approaches a series of potential rate cuts.
Pfizer: robust performance at an unbeatable price
For those who are loyal long-term investors, Pfizer is a must-have in your income portfolio right now. With a dividend yield of 5.87% and a share price less than 13 times forward earnings, the pharmaceutical giant’s stock is on track to outperform the market over the next 10 to 20 years.
Pfizer is a major player in the global pharmaceutical industry, offering a broad portfolio of major drugs and potential candidates across all key therapeutic areas. Its broad scale, expertise and growing innovation capabilities position it to deliver strong performance over the coming decade and beyond.
Why is Pfizer stock trading at a discount to the S&P 500? The company’s revenue took a significant hit due to slowing sales of its COVID-19 products after the pandemic officially ended. Moreover, its series of acquisitions, mainly driven by unexpected profits from the pandemic, failed to attract investor interest.
This lack of enthusiasm is not surprising, given the current hype surrounding weight-loss drugs. Although Pfizer is not considered by most analysts to be a leader in obesity treatment, this narrow perspective overlooks the bigger picture.
Pfizer is now focusing on oncology, an area known for its pricing strength, inherent competitive barriers and above-average commercial lifespan. Given the historical trend of high dividend stocks outperforming over long periods of time, Pfizer appears to be a top pick for dividend investors right away.
Should you invest $1,000 in AbbVie right now?
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George Budwell holds positions at Pfizer. The Motley Fool holds positions at and recommends Pfizer. The Mad Motley has a disclosure policy.
2 High-Yielding Dividend Stocks to Buy Now was originally published by The Motley Fool
