You don't have to be an income investor to like dividends. Many billionaires who definitely don't need income still have dividend stocks in their portfolios.
Which dividend stocks are great picks right now? Here's why three Fool.com contributors chose AbbVie (ABBV -0.66%), Johnson & Johnson (JNJ -0.36%), and Pfizer (PFE 0.23%) as fantastic dividend stocks to buy sooner rather than later.
Something for nearly every investor
Keith Speights (AbbVie): Income investors have different priorities than value and growth investors -- and vice versa. It's understandable, therefore, that each type of investor gravitates toward different stocks. However, I think AbbVie offers something for nearly every investor.
Income investors should like AbbVie's forward dividend yield of 3.6%. And they could love the big drugmaker's dividend track record. AbbVie has increased its dividend for 52 consecutive years. The company has also more than quadrupled its dividend since being spun off from Abbott in 2013.
Value investors could find AbbVie attractive, too. The stock trades at 15.4 times forward earnings, which is lower than the S&P 500 healthcare sector's forward earnings multiple of 18.2. Even better, AbbVie's price-to-earnings-to-growth (PEG) ratio based on five-year earnings growth projections is a super-low 0.44, according to LSEG.
What about growth investors? Admittedly, AbbVie hasn't recently delivered anywhere close to the kind of growth these investors would prefer. The company continues to face declining sales for its juggernaut autoimmune disease drug Humira as it battles biosimilar competition.
However, AbbVie has an impressive lineup of newer drugs on the market now, as well as a promising pipeline. The company expects solid high-single-digit-percentage compound growth through the end of this decade, with continued growth into the next decade. Combined with its strong dividend, AbbVie should be able to deliver attractive total returns for a long time to come.
This dividend stock might bend, but it won't break
Prosper Junior Bakiny (Johnson & Johnson): It's been a year to forget for Johnson & Johnson, one of the largest healthcare companies in the world. The stock is down slightly year to date as of this writing, partly due to issues related to the Inflation Reduction Act (IRA), a new law in the U.S. that allows Medicare to negotiate the prices of certain drugs. Several of Johnson & Johnson's medicines will be targeted by the first round of negotiations. This adds to the healthcare giant's legal issues, especially the lawsuits related to its talc-based products.
Some might think Johnson & Johnson's headwinds are too severe. However, the company's more than 100-year history -- during which it endured endless challenges and survived various economic environments -- disagrees. The past is no guarantee of future success, but no healthcare company can perform as well as Johnson & Johnson has for that long without a solid underlying business, a culture of innovation, and a strong balance sheet. Johnson & Johnson boasts all three of these strengths and more.
So, the company's obstacles might impact its performance, but the drugmaker should be just fine over the long run. And considering it is currently underperforming the market, now might be as good a time as any to jump on board.
Johnson & Johnson is a Dividend King, with an active streak of 62 consecutive years of payout increases. It also offers a forward yield of 3.21%, much higher than the S&P 500's average of 1.32%. In short, Johnson & Johnson remains a top dividend pick for long-term investors to buy before the stock bounces back.
Pfizer's dividend yield may not stay this high for long
David Jagielski (Pfizer): It's natural for investors to have doubts about a dividend stock that offers a high yield. But in some cases, the risk and concern may be overblown, as I think it is with Pfizer. The healthcare stock offers an extremely attractive yield of 6.6% that, if investors didn't have doubts about its future, would surely be a hot buy right now.
The problem is that investors are concerned about falling COVID sales, patent cliffs, and if Pfizer may need to slash its dividend to help free up cash flow to pay down debt and invest in its long-term growth. But Pfizer is in a solid financial position, and it has already beefed up its pipeline with multiple acquisitions, including a mammoth $43 billion purchase of oncology company Seagen last year. The company is confident that through its pipeline and acquisitions, it can more than offset the effects of revenue losses from patent cliffs.
Investors, however, may look at Pfizer's payout ratio of more than 200%, and when combined with dropping COVID sales, assume that the dividend is due for a cut. But impairment charges have negatively impacted its earnings in past quarters, making its bottom line look worse than it otherwise would be. In the company's most recent quarter, which ended in September, Pfizer's diluted per-share profit came in at $0.78 -- well above the rate of its quarterly dividend rate of $0.42. If it maintains its current level of profitability, its payout ratio will be around 54%.
As investors realize this is a safer stock than it looks, Pfizer's valuation will rise and the dividend yield will fall. That's why you would be better off buying it sooner rather than later before that happens.
