These highly advantaged businesses have what they need to keep raising their dividend payouts.
The first-quarter earnings season has reached a crescendo. Among companies that reported recently are a handful of dividend-paying businesses that offer dividend yields above 4% at recent prices.
Some investors are interested in stable, predictable cash flows, while others insist on rapid dividend growth. Read on to see how these stocks have a little something for everyone.
CVS Health
Shares of CVS Health (CVS 1.36%) recently tanked about 16% after the company issued a downward guidance revision. At its recently beaten-down price, the stock offers a 4.7% dividend yield and a very good chance to receive heaps more down the road.
CVS Health’s dividend has exploded 142% higher over the past 10 years. and it’s in a better position to generate steadily growing profits now than it was a decade ago. In addition to the retail pharmacy chain we’re all familiar with, CVS Health owns America’s largest pharmacy benefits management business. It also owns Aetna, a leading health insurance benefits management business.
CVS Health’s vertically integrated business means it can directly provide many of the benefits it’s also paid to manage. In recent years, CVS Health has integrated further by acquiring physician groups such as Signify Health and Oak Street Health.
Higher-than-expected medical usage trends raised CVS Health’s outgoing expenses in the first quarter. The company is also factoring in changes to the Medicare Advantage rating system that will lower incoming payments from the government.
CVS Health is a buy on the dip because the issues pressuring earnings this year are temporary. Fortunately, its relatively unique position at the crossroads of primary care, pharmacy services, and benefits management is a durable advantage that will most likely allow it to continue raising its dividend payout at a rapid pace for another decade.
Ares Capital
Ares Capital (ARCC 0.34%) is America’s largest business development company (BDC). These tax-advantaged entities are popular among income-seeking investors because they must distribute at least 90% of their profits to investors as a dividend.
At recent prices, Ares Capital offers an eye-popping 9.2% yield. The dividend payout hasn’t grown in a straight line, but it is up by 20% over the past three years.
BDCs exist because big American banks generally aren’t willing to lend to middle-market businesses, regardless of their ability to generate cash and pay their bills. As a result, Ares Capital can charge well-managed businesses interest rates for secured loans that are often higher than the rates individuals receive for unsecured loans. In the first quarter, Ares reported an average yield of 12.4% on its debt-related securities.
Ares Capital probably won’t be the fastest dividend grower in your portfolio, but it has a good chance to continue meeting its dividend obligation and raising its payout over the long run. As one of the most established BDCs in America, its borrowing costs are relatively low compared to its peers’.
Pfizer
Pfizer (PFE 0.40%) isn’t getting much attention due to a lack of anti-obesity treatments, but it’s still America’s largest pharmaceutical company by sales. At recent prices, the stock offers an impressive 6.2% dividend yield.
The company’s COVID-19-related product sales collapsed faster than expected, but the rest of its portfolio keeps marching higher. Excluding COVID-19 product contributions and currency fluctuations, first-quarter sales marched 11% higher year over year.
Strong growth from several brands encouraged Pfizer to raise its 2024 adjusted earnings expectation by $0.10, to a range between $2.15 per share and $2.35 per share. That’s more than it needs to meet a dividend commitment currently set at $1.68 per share annually.
Over the past decade, Pfizer has raised its payout by 62%, and steady consecutive annual raises seem likely in the decade ahead too. In 2023, the company earned U.S. Food and Drug Administration (FDA) approval for nine brand-new drugs, which was a new record. They can’t all be zingers, but there are likely enough potential blockbusters on deck to keep Pfizer’s bottom line moving in the right direction.
Cory Renauer has positions in Ares Capital and CVS Health. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.