Undervalued Stocks in a Booming Market: Where to invest in Healthcare for high yield dividends
Stock Market01/07/2024
Mr. Smith
In the past 12 months, the S&P 500 index has surged by approximately 24%, making it a stellar year for most stocks. While a rising market is advantageous for existing portfolio stocks, identifying new investment opportunities has become more challenging. However, for those who know where to look, there are still promising prospects, particularly in the healthcare sector, which remains full of undervalued stocks.
Healthcare Sector: A Goldmine for Income-Seeking Investors
Amidst the buzz surrounding artificial intelligence-related businesses, the healthcare sector offers investment opportunities that many investors might overlook. Pharmaceutical companies, in particular, present significant potential for income-seeking investors. Notable examples include Pfizer (NYSE: PFE) and AbbVie (NYSE: ABBV), both of which offer dividend yields significantly above the market average and have the potential to increase these payouts for years to come.
Pfizer: A Steady Performer with High Yields
Pfizer has been consistently raising its dividend since 2009, despite its stock price dropping by about 23% over the past year. Currently, at its depressed price, Pfizer offers an attractive 6% yield. Although sales of Pfizer’s COVID-19 products have declined, these products now account for only 16% of total revenue. Excluding COVID-19 products and the effects of a stronger dollar, Pfizer’s first-quarter sales surged by 11% year-over-year.
Pfizer has strategically reinvested its COVID-19 windfall into developing new drug candidates and expanding its existing product lineup. In 2023, the Food and Drug Administration (FDA) approved nine new drugs from Pfizer. Additionally, some of Pfizer’s existing drugs received new indication approvals, such as Padcev, now approved for treating newly diagnosed bladder cancer patients.
With a diverse product lineup and robust growth in total sales, Pfizer is well-positioned to deliver steadily rising earnings, making it a reliable choice for investors looking for consistent income growth.
AbbVie: Sustaining Growth with New Blockbusters
AbbVie, which spun off from Abbott Laboratories in 2013, has continued its parent company’s long-standing tradition of raising dividends. At current prices, AbbVie offers a solid 3.6% dividend yield. While this yield is slightly lower than Pfizer’s, AbbVie’s strong performance history suggests potential for significant long-term income growth.
Despite the loss of patent protection for its lead drug Humira in the U.S., AbbVie has maintained robust revenue growth. In the first quarter, Humira sales accounted for just 14% of total revenue. Newer drugs like Skyrizi and Rinvoq, which launched in 2019, have shown impressive growth. Skyrizi, an injection for psoriasis and inflammatory bowel diseases, saw first-quarter sales jump 48% year-over-year to an annualized $8 billion. Rinvoq, a daily tablet, experienced a 59% year-over-year sales surge to an annualized $4.4 billion.
AbbVie projects that combined annual sales of Skyrizi and Rinvoq will exceed $27 billion by 2027. Additionally, AbbVie’s newer migraine treatments, Ubrelvy and Quilipta, reached an annualized $1.3 billion in first-quarter sales, with peak sales expected to exceed $3 billion.
With expectations for single-digit percentage sales growth through 2029, AbbVie is poised to continue raising its dividend payout in line with sales growth. This makes AbbVie an excellent choice for investors seeking to boost their passive income streams.
Conclusion
In conclusion, while the booming stock market presents challenges in finding new investment opportunities, the healthcare sector remains a promising area for income-seeking investors. Pfizer and AbbVie are two standout companies offering substantial dividend yields and the potential for ongoing growth. By strategically investing in these undervalued stocks, investors can secure a steady and growing income stream.
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