2 High-Yielding Healthcare Stocks to Buy With $1,000 in July

It’s been a big year for most stocks, with the S&P 500 index up about 24% over the past 12 months. A rising market is wonderful for the stocks already in your portfolio, but finding new investment opportunities is a lot more challenging than it was a year ago.

A buoyant stock market makes it harder to find compelling investment opportunities, but not if you know where to look. With artificial intelligence-related businesses absorbing most investors’ attention, the healthcare sector is full of underappreciated stocks.

This is a good time for income-seeking investors to consider the underappreciated pharmaceutical industry. Shares of Pfizer (PFE 0.86%) and AbbVie (ABBV -0.67%) offer dividend yields that are miles above the market average, and there’s a good chance they’ll keep raising those payouts for at least another decade.

This pair of dividend payers offers an average yield of 4.8% at recent prices. So an investment of $1,000 spread between them will produce about $48 in dividend income over the next 12 months and significantly more by the time you’re ready to retire.

Pfizer

Pfizer has been raising its dividend every year since 2009, but its stock price has been beaten down by about 23% over the past 12 months. At its recently depressed price, the pharmaceutical stock offers a huge 6% yield.

Sales of Pfizer’s COVID-19-related products fell hard, but now that they’re only responsible for about 16% of total revenue, the worst is over. If we exclude COVID-19 products and the negative effects of a stronger dollar, the drugmaker reported first-quarter sales that surged 11% year over year.

Pfizer wisely reinvested its COVID-19 windfall into new drug candidates still in development, plus plenty that are already on the market. In 2023, the Food and Drug Administration (FDA) approved nine new drugs from the company.

Pfizer also benefited from some indication-expanding approvals of some drugs it already markets. For example, Padcev is now approved to treat newly diagnosed bladder cancer patients.

Sales of individual drugs can be unpredictable. With a large and diverse product lineup growing total sales at an impressive pace, investors can count on Pfizer to produce steadily rising earnings in the years ahead.

AbbVie

AbbVie spun out from Abbott Laboratories in 2013 and kept up its parent’s decades-long dividend-raising streak. At recent prices, the stock offers a nice 3.6% dividend yield.

AbbVie offers a lower up-front yield than Pfizer, but a repeat of its past performance could produce more passive income over the long run. AbbVie’s raised its dividend payout by 45% over the past five years.

AbbVie’s last couple of dividend raises were modest ones because its lead drug, Humira, lost patent-protected exclusivity in the U.S. market last year. In the first quarter, Humira sales were responsible for just 14% of total revenue.

With strong contributions from a pair of drugs that launched in 2019, replacing Humira sales and an accelerating dividend growth rate seems likely. Skyrizi is an injection for psoriasis and inflammatory bowel diseases, with first-quarter sales that jumped 48% year over year to an annualized $8 billion. Rinvoq is a daily tablet with first-quarter sales that surged 59% year over year to an annualized $4.4 billion.

AbbVie thinks the combined annual sales of Skyrizi and Rinvoq will more than double to exceed $27 billion in 2027. While these are its biggest growth drivers, they aren’t the only products it sells with rapidly rising sales. Sales of the company’s relatively new migraine headache treatments, Ubrelvy and Quilipta, soared to an annualized $1.3 billion in the first quarter. Management expects sales of this pair to exceed $3 billion at their peak.

Despite Himira’s decline, AbbVie expects total sales to grow by a single-digit percentage through 2029. Over time, the well-managed drugmaker is likely to raise its dividend payout in line with sales, which makes buying its stock now a great way to boost your passive income stream.