Search for investments capable of outperforming the benchmark index S&P500 the index often becomes extremely complicated. If you’re new to the investing process, you’ll be happy to know that building a portfolio capable of outperforming the overall market isn’t as difficult as it seems.
Filling your portfolio with the best dividend-paying stocks doesn’t guarantee great returns, but you’d have to be unlucky to underperform that way. From 1973 to 2023, the average dividend-paying stock in the S&P 500 Index generated an annual return of 9.17%. Stocks in the same index that lacked dividend programs produced a paltry average annual return of 4.27% over the same period, according to Hartford Funds and Ned Davis Research.
Investors looking for stocks that can generate satisfactory returns with limited risk may want to turn their attention to Bristol Myers Squibb (NYSE:BMY) And AT&T (NYSE:T). Just $100 is enough to buy shares of both dividend-paying stocks, and you don’t have to wait long for them to generate significant levels of passive income. Both now offer above-average yields and are well positioned to increase their dividend payouts.
Bristol Myers Squibb
If you’ve had major surgery recently, there’s a good chance you’ve also filled a prescription for Eliquis, a drug that Bristol Myers Squibb markets in partnership with Pfizer. Sales of the blood clot-fighting tablet in the first quarter climbed 9% year-over-year to $3.7 billion.
Patent protection is expected to keep generic competition away from Eliquis until at least 2028, and it is one of several Bristol Myers Squibb blockbusters with years of patent-protected market exclusivity ahead of it.
The company’s growth pipeline contains 12 drugs younger than Eliquis, and their sales are skyrocketing. The company’s growth portfolio increased first-quarter sales by 11% year-over-year when excluding the negative effects of the strengthening dollar.
Bristol Myers Squibb’s growth portfolio has recently expanded. On May 30, the Food and Drug Administration approved a new cell-based cancer therapy from the company Breyanzi.
It’s been 92 years since Bristol Myers Squibb started paying dividends and 15 years since it went more than a year without increasing its dividend at least once. At recent prices, the pharmaceutical stock offers a yield of 5.9% and an excellent chance of seeing payouts increase for another 15 years.
In the first quarter, Bristol Myers Squibb completed the acquisitions of Mirati Therapeutics, RayzeBio and Karuna Therapeutics. All three are in late-stage clinical trials with experimental therapies that could eventually become blockbuster drugs with over $1 billion in annual sales.
AT&T
AT&T has reduced its dividend payout in 2022 to compensate for the spin-off of its media assets. The telecommunications company’s share price has been under pressure since the dividend cut. At recent prices, the stock offers an attractive yield of 6.3%.
AT&T has lost many broadband subscribers to competitors offering fixed wireless services powered by 5G. However, late last year it launched its own fixed wireless service, and customers seem eager to sign up. The company added 110,000 AT&T Internet Air subscribers in the first quarter, and it was the third consecutive quarter with net additions for the broadband segment.
The decline in equipment sales limited the mobility segment’s revenue growth in the first quarter to 0.1% year-on-year. Although AT&T may not generate much interest in the latest iPhone, investors should be encouraged by the 741,000 net new wireless subscribers the company added in the first three months of the year.
AT&T generated $21.9 billion in free cash flow over the last 12 months. That’s enough to cover a dividend commitment that is currently set at around $8.1 billion per year while significantly reducing its debt load.
AT&T ended March with net debt of $128.7 billion after paying down $4.7 billion in the first quarter. The company plans to reduce its net debt to 2.5 times adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the first half of 2025.
AT&T has no plans to increase its dividend. That said, I’d be surprised if the company doesn’t start increasing its payouts again after hitting its debt reduction target next year. Adding some high-yielding stocks to your portfolio right away could generate huge passive income in the future.
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool posts and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.
2 Simple Dividend Stocks You Can Buy with $100 in June was originally published by The Motley Fool
