Dividend stocks are great; cheap dividend stocks are better.
There are plenty of excellent reasons to invest in dividend stocks, including the fact that only rock-solid companies can afford to sustain payout increases for a long time. When you put your money into corporations that have been paying dividends for a while, you may be investing in relatively safe and robust companies.
However, even though dividend stocks can be great to buy, they’re even better when you can get them at a discount. And there’s no better time to do that than when the market takes a dive. Let’s look at two attractive dividend stocks that would become even more so in a bear market: Abbott Laboratories (ABT 1.05%) and Gilead Sciences (GILD 0.37%).
1. Abbott Laboratories
Medical device specialist Abbott Laboratories is an exceptional dividend stock. The healthcare giant has raised its payouts for 52 consecutive years, a rare feat that makes it part of the exclusive Dividend Kings. Abbott’s forward yield, currently 2.1%, isn’t that high — but it’s still better than the S&P 500‘s current average of 1.3%.
However, Abbott’s shares look somewhat expensive. The forward price-to-earnings (P/E) ratio is 22.6 as of this writing, which is higher than the healthcare industry’s average of 19.2. While even at these levels Abbott’s shares might be worth buying, a bear market could create a better entry point for income investors interested in the stock. The company’s forward P/E isn’t massively higher than the average for its sector, and its business remains attractive.
Abbott Laboratories markets a vast portfolio of medical devices across several therapeutic areas, from structural heart products to diabetes care. The company’s other segments — nutrition, established pharmaceuticals, and diagnostics — make the business diversified. Although medical devices is its most important unit, Abbott doesn’t rely solely on that unit’s operations to drive growth. The corporation also has a vast presence across the globe.
Though the pandemic disrupted its business, Abbott’s revenue and earnings have generally moved in the right direction. In the second quarter, the top line of $10.4 billion was up 4% year over year; excluding sales of COVID-19 diagnostic tests, sales were up 9% year over year organically. Adjusted earnings per share (EPS) of $1.14 increased by 5.6% compared to the year-ago period.
Furthermore, the company has several important long-term growth drivers. None is more critical than its FreeStyle Libre franchise, a collection of continuous glucose monitoring (CGM) devices that aid diabetic patients in keeping track of their blood glucose levels. In the second quarter, FreeStyle Libre sales were up 18.4% year over year (more than four times the growth rate of Abbott’s total sales) to $1.6 billion. Abbott still sees plenty of growth potential with the FreeStyle Libre, as it says only a tiny fraction of the “half a billion” adults in the world with diabetes have access to CGM technology.
In short, Abbott’s underlying business is robust and diversified, and boasts key growth opportunities. That should allow it to continue rewarding shareholders with dividend hikes for a long time. Though it might be worth waiting for a better entry point before purchasing the stock — especially as its current bottom-line growth hardly justifies its valuation — getting in now wouldn’t be a bad move.
2. Gilead Sciences
Gilead Sciences has dealt with various headwinds in recent years, including pandemic-related disruptions to its business (like many other companies), and failure to earn regulatory approval for drug candidates that looked extremely promising. Still, the company’s valuation remains pretty high — its forward P/E currently tops 21.
Gilead Sciences’ financial results haven’t been particularly stellar lately. In the first quarter, the company’s revenue increased by 5% year over year — 6% excluding its coronavirus antibody — to $6.7 billion. The company turned in an adjusted loss per share of $1.32, compared to the adjusted EPS of $1.37 reported in the prior-year quarter.
In fairness, the net loss was due to charges related to an acquisition. That’s hardly something that will plague Gilead Sciences’ business every quarter. Moreover, there are solid reasons to expect the company to bounce back eventually.
Gilead Sciences is the worldwide leader in the HIV drug market thanks to Biktarvy, the top-selling HIV medicine in the world. Last year, Biktarvy was the fifth best-selling of all medications globally, with revenue of $11.8 billion, and the drug keeps marching forward: In the first quarter, its sales jumped by 10% year over year to $2.9 billion.
The company has long been a leader in this field, and its pipeline features many other potential drugs for HIV. Meanwhile, it’s venturing further into other fields. For instance, although still small, its oncology unit has been making solid headway. In the first quarter, oncology sales were up 18% year over year to $789 million. Between HIV, oncology, and several other therapeutic areas, Gilead has the tools to replenish its lineup, given the richness of its current pipeline and its impeccable track record.
The drugmaker has what it takes to sustain its dividend payments; it’s increased its payouts by over 22% in the past five years. And it currently offers a forward yield of close to 4%. Gilead Sciences would be an excellent dividend stock to buy on the dip.
