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Finding high-yielding companies isn't everything when investing in dividend stocks. Sometimes, companies' yields increase after their share prices drop significantly, which can occasionally be a sign that the business could be in trouble and may have to decrease its payouts. So before investing in a high-yield dividend stock, it's essential to ensure that its underlying business is solid and will likely continue to hike its dividends.
Let's look at two companies with yields higher than the S&P 500 average that are worth buying and holding on to now: AbbVie (NYSE: ABBV) and Gilead Sciences (NASDAQ: GILD).
1. AbbVie
Every good thing must come to an end. AbbVie experienced that firsthand last year with the loss of patent exclusivity for its superstar rheumatoid arthritis drug, Humira, in the U.S. Though this was a significant loss, considering how successful Humira has been, all drugmakers eventually run into patent cliffs. The important question is whether the company can bounce back after a short period of sales decline. The answer seems to be yes.
AbbVie has several blockbusters in its portfolio, including the rest of its immunology lineup -- Skyrizi and Rinvoq -- along with its Botox franchise, depression therapy Vraylar, and cancer drug Venclexta. AbbVie expects Skyrizi and Rinvoq to exceed Humira's peak sales and reach $27 billion in revenue between them by 2027. Management also said long ago that it would be extremely difficult for competitors to create biosimilars for Botox.
That's one of the reasons AbbVie acquired Allergan in 2020 for $63 billion. AbbVie's newer approvals should also play a major role, eventually. These include migraine treatment Qulipta, first approved in 2021, and cancer medicine Epkinly, launched in the U.S. last year. Qulipta's sales more than doubled in 2023 to $408 million. It should exceed $1 billion in annual sales in a couple of years.
AbbVie's pipeline will continue delivering newer and better products. That's the key to surviving patent cliffs. Looking at AbbVie's dividend track record, the company has much to offer income seekers. It has now increased its payouts for 52 consecutive years. AbbVie's forward dividend yield of 3.47% is higher than the S&P 500's average of 1.47%. Its cash payout ratio of 48% shows it can cover its dividends and has plenty of room for payout hikes.
So despite AbbVie's recent struggles, its dividend profile and overall prospects remain solid.
2. Gilead Sciences
Gilead Sciences is also dealing with slow revenue growth. In 2023, the company's top line decreased by 1% year over year to $27.1 billion. However, the biotech's coronavirus portfolio has affected its financial results. Excluding Gilead Sciences' COVID-19 antiviral medicine, Veklury, the company's total sales last year increased by a much better 7% year over year. Gilead Sciences' performance should improve as the effects of Veklury fade.