When it comes to dividend investing, there are two basic paths you can take. You could seek out businesses that are raising their payouts at a rapid pace, but these stocks tend to offer low yields. The other basic option available to dividend investors is to buy stocks with really high yields. Unfortunately, stocks rarely offer ultrahigh yields unless there's concern about their ability to raise or maintain their dividend payouts.
If you can't decide which dividend investing option you like best, I have some great news. AbbVie (ABBV -0.39%) and W.P. Carey (WPC 0.27%) offer investors the best of both worlds. Here's why they look like no-brainer buys for 2025.
1. AbbVie
AbbVie has been a long-term dividend investor's dream come true since it split from Abbott Laboratories in 2013. Abbott investors who wisely held on to shares of the biopharmaceutical spinoff have seen the dividend payments they deliver soar by 310%. You might expect a stock that raises its dividend this fast to have a low yield, but it actually offers a juicy 3.6% at recent prices.
AbbVie stock has been beaten down recently because an $8.7 billion investment the company made in Cerevel Therapeutics in 2023 hasn't worked out as planned. This November, we learned that Emraclidine, the experimental treatment that attracted AbbVie to Cerevel, failed to improve symptoms for schizophrenia patients in a pair of phase 2 trials.
Luckily for AbbVie, Cerevel quickly redeemed itself. Tavapadon, a potential first-in-class Parkinson's disease treatment it was developing, met its primary endpoint in the phase 3 Tempo-2 trial. Treatment with the D1/D5 partial agonist significantly improved patients' disease rating scores after 26 weeks of treatment.
In a few years, tavapadon could begin generating billions in annual revenue. AbbVie looks like a great stock to buy because it can continue raising its dividend at a rapid pace even without a new Parkinson's disease drug.
AbbVie's lead drug by sales, Skyrizi, launched in 2019, and it's already dominating the market for psoriasis medications. During the first nine months of 2024, sales of the injectable treatment rose 48% year over year to $7.9 billion.
Skyrizi isn't the only relatively young drug pushing up sales for AbbVie. In the first nine months of 2024, Rinvoq, an arthritis treatment that also launched in 2019, grew sales by 52% year over year to reach $4.1 billion.
During the 12-month period that ended last September, AbbVie generated $15.6 billion in free cash flow. The company used only 70% of this sum to meet its dividend obligation. With Skyrizi, Rinvoq, and possibly tavapadon to push sales higher, patient investors could receive heaps of passive income from this stock over the long run.
2. W.P. Carey
W.P. Carey is a real estate investment trust (REIT) that collects rent from a variety of different businesses that sign long-term net leases. Income-seeking investors love these types of stocks because they have to deliver at least 90% of their profit to investors as dividend payments. At recent prices, W.P. Carey's dividend offers a big 6.4% yield at recent prices.
Shares of this well-run REIT have been under pressure for a couple of reasons that aren't significant to income-seeking investors considering a new investment in the stock. In 2023, it made a difficult decision to spin off its office building portfolio into a separate entity and lower its dividend payout accordingly.
Declining rents from offices was an unexpected problem that W.P. Carey dealt with in the best way possible. This nuance doesn't come across for every stability-seeking investor who pulls up its dividend chart.
A recent dividend cut isn't the only issue pressuring W.P. Carey's stock price. Bond traders expecting stronger economic growth, higher inflation, and rising debt pushed yields on 10-year Treasury notes through the roof over the past few months. When Treasury yields rise, shares of riskier income-generating assets like REIT stocks fall.
Taking advantage of W.P. Carey's beaten-down price gives investors a great chance to see a big dividend yield grow further. The company's largest tenant, Extra Space Storage, is resilient to economic downturns and contributes just 2.7% of the REIT's annualized base rent.
The well-diversified REIT has already raised its dividend payout four times since lowering it in 2023. Despite recent raises, there's plenty of room for more. Management expects adjusted funds from operations, a proxy for earnings used to evaluate REITs, to reach $4.68 at the midpoint of its guided range. That's heaps more than it needs to meet a dividend payment currently set at just $3.52 annually.
Adding some shares of this highly resilient dividend payer to a diverse portfolio now and holding it for the long run looks like a great way for most income-seeking investors to boost their passive income stream.
