Did you know that September is generally a lousy month for the stock market? Individual investors and hedge fund managers tend to take profits they've gained over the summer or sell off any losers to lower their taxable income.
This September, the Federal Reserve is widely expected to reduce interest rates. Rate reductions tend to raise markets but investors have been expecting this one for over a year. In other words, there's a good chance this will be another disappointing September for the stocks you already own.
It's the price you pay that determines the return you receive on an investment. If prices fall this September, as expected, it could be an opportunity to scoop up some high-yielding dividend stocks at a discount.
At recent prices, AbbVie (NYSE: ABBV) and AT&T (NYSE: T) offer yields that are more than double what you'd receive from the average stock in the benchmark S&P 500 index. Here's why you want to scoop them up in September and hold for the long run.
AbbVie
AbbVie is a leading pharmaceutical company with shares that offer a 3.2% yield at recent prices and a long history of annual payout raises.
AbbVie has raised its quarterly payment every year since spinning off from Abbott Laboratories in 2013 and its parent's dividend-raising history goes back even further. Abbott has raised its payout for 52 consecutive years.
AbbVie's pace of dividend payout raises has been remarkable. It's raised its quarterly payments by 269% over the past decade and it has breathing room to announce more big increases over the next few years. The company generated $17.8 billion in free cash flow over the past 12 months but used just 61% of this sum to meet its dividend obligation.
Shares of AbbVie are under some pressure because its former lead drug, an anti-inflammation injection called Humira, lost patent-protected market exclusivity in 2023. The stock looks like a smart buy because investments AbbVie made with Humira profits could offset the losses and drive growth in the decade ahead.
For example, Rinvoq, a tablet for arthritis, and Skyrizi, an injection for psoriasis, are capable of offsetting Humira losses on their own. These two drugs both launched in 2019 but they are already generating $16.6 billion annually in combined sales.
Rinvoq and Skyrizi are enormously successful but they aren't the only products that will push up AbbVie's profits and in turn its dividend payouts. In the first half of 2024, the company's migraine headache drugs, Qulipta and Ubrelvy, grew sales by 73% and 25% compared to the previous year. With plenty of relatively new drugs driving growth, investors can reasonably expect another decade of rising dividend payments from this stock.
AT&T
AT&T spun off its media assets in 2022 then slashed its dividend accordingly and hasn't raised it since. At recent prices, the stock offers a big 5.6% dividend yield plus a good chance to see significant dividend payout bumps in the decade ahead.
Lengthening smartphone upgrade cycles depressed equipment sales but demand for broadband services is strong enough to offset the losses. Consumer broadband sales are currently responsible for less than 10% of revenue but they're on the rise. New customers flocking to AT&T Fiber plus a new fixed wireless service for folks not located near a fiber line drove second-quarter consumer broadband sales 7% higher year over year.
In addition to an increasingly large broadband operation, mobility service revenue is on the rise. With an industry-leading churn rate, second-quarter mobility service revenue rose 3.4% year over year.
AT&T expects between $17 billion and $18 billion in free cash flow this year. It hasn't announced a dividend raise yet, but it's generating enough cash to pay down a large debt load and begin increasing its payout again sometime next year. Adding some shares to a portfolio now looks like a smart way to boost your passive income stream.
Should you invest $1,000 in AbbVie right now?
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2 High-Yield Dividend Stocks to Buy in September and Hold for a Decade or Longer was originally published by The Motley Fool