Whether you’re looking for a way to beat the benchmark S&P 500 index or you just want a steady flow of passive income, dividend-paying stocks are a great way to achieve your investment goals.
Once companies commit to sharing a portion of their profits with shareholders, they act in ways that tend to boost returns over time. The difference is measurable and larger than you might expect.
During the 50-year period that ended in 2023, dividend-paying stocks in the S&P 500 index delivered a 9.17% average annual return. Non-dividend-paying stocks in the same index underperformed with a 4.27% average annual return over the same time frame, according to Ned Davis Research and Hartford Funds.
At recent prices, shares of Coca-Cola (KO -0.62%), and Amgen (AMGN -0.64%) offer dividend yields above 3%, plus there’s a good chance they’ll be able to raise their payouts for many years to come. Read on to see why they deserve a place in just about any investor’s portfolio.
1. Coca-Cola
Shares of the company behind the world’s most popular beverage brand have fallen about 14% from a peak they reached in September. The stock is down, but the company hasn’t lowered its quarterly dividend payout.
Coca-Cola raised its dividend for the 62nd year in a row this February. Following the 5.4% bump, the stock offers a juicy 3.1% yield at recent prices.
Sugary sodas aren’t the growth driver they used to be, but Coca-Cola’s been able to offset declining soda consumption with a variety of new products. The company has 12 billion-dollar brands in the water, sports, and tea categories.
In the first nine months of 2024, unit case volume grew by just 1%, but strong brand recognition gave Coca-Cola a lot of pricing power. Organic revenue, which excludes currency exchange rates, rose 12% year over year.
Coca-Cola is expecting some currency headwinds this year. If we ignore the effects of currency exchange, though, adjusted earnings are expected to climb 14% to 15% this year.
Acquiring potential competitors as they emerge has allowed Coca-Cola to offset decades of declining demand for sugary sodas. As the world’s largest beverage company, it can probably continue applying this winning strategy throughout your retirement years.
2. Amgen
For over 40 years, Amgen has led America’s biotechnology industry. Many of Amgen’s long-term shareholders have realized tremendous returns, but the stock is down by about 19% from a peak it reached in September.
Amgen’s stock price is down, but its dividend has risen by 40.6% over the past five years. The stock offers a 3.3% dividend yield, and another payout bump announcement is likely around the corner. Last December, the company announced its 12th consecutive annual dividend payout raise.
Amgen’s stock price has been beaten down because its attempts to develop an anti-obesity drug haven’t succeeded in the eyes of investors. The stock is a buy on the dip because its overlooked product portfolio has plenty of growth drivers to push its bottom line, and dividend payout, higher.
For example, sales of an asthma drug Amgen markets in partnership with AstraZeneca, called Tezspire, are soaring now and could get another big boost. Recent clinical trial results show it significantly reduced the size of patients’ nasal polyps and reduced congestion.
Third-quarter Tezspire sales rocketed 67% higher year over year to an annualized $1.1 billion. An eventual approval to treat chronic nasal polyps could push sales of the blockbuster much higher.
In 2023, Amgen acquired a handful of rare-disease drugs from Horizon Therapeutics. One of them, Tepezza, is the only FDA-approved treatment for thyroid eye disease. Krystexxa is the only FDA-approved treatment for chronic gout, and Uplinza is used to treat a progressive autoimmune disease that affects vision. Combined sales of these three treatments rose to an annualized $3.6 billion in the third quarter.
With a lack of competition for the patient populations Horizon’s drugs address, Amgen could keep raising its dividend at a rapid pace for another 12 years. Adding some shares to a diversified portfolio now and holding them over the long run looks like a smart move.
