3 High-Yield Dividend Stocks to Buy in December

By Markets Fool.com

High-yield dividend stocks tend to be a mixed bag. On the one hand, above-average payouts can really boost a portfolio's return on capital. In the same breath, high-yields are often the unwanted by-products of a stock's poor performance over a short period of time.

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Keeping these issues in mind, our team of dividend experts think that investors may want to grab some shares of the high-yield dividend stocks Novo Nordisk (NYSE: NVO), Pfizer (NYSE: PFE), andInternational Business Machines (NYSE: IBM) this December. Here's why.

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This Big Pharma has a stellar yield

Sean Williams (Novo Nordisk): If you're looking for a high-yield stock that could add some pep to your portoflio's step in December, my suggestion would be to consider Danish drug giant Novo Nordisk (NYSE: NVO).

Novo Nordisk, which is a kingpin in the diabetes space, disappointed Wall Street and investors following the release of its third quarter results in late October. The company essentially cut its long-term profit growth forecast in half to 5% from 10%, and it alluded to tougher insulin pricing practices in the U.S. that's caused it to lower its prices in order to remain on insurer formularies. The result is weaker-than-expected profit projections for 2017. As a result of its falling share price, Novo Nordisk's yield has shot up to an attractive 4.1%.

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However, Novo Nordisk'sr recent slump overlooks two key factors. Namely, Novo Nordisk's history of innovation, and that the long-term numbers remain on the company's side.

To start with, Novo Nordisk has demonstrated time and again that it can bring innovative drugs to market, which is the key to winning in a highly competitive diabetes industry. For example, its next-generation insulin product Tresiba totaled $358 million in sales during the third quarter, representing growth of 184%. Tresiba is already extrapolating out to approximately $1.4 billion in annual sales, and Wall Street has this next-gen insulin product pegged at around $3 billion in peak annual sales.

But it's the steady rise in global diabetes trends that could allow Novo Nordisk to succeed simply on account of sheer volume, even if its margins are being pressured in the near-term. Within the U.S., arguably the most important market for Big Pharma, the percentage of the U.S. population with diabetes has grown from 0.87% in 1959 to 7.02% as of 2014, according to the Centers for Disease Control and Prevention. If this trend continues in the U.S., and to a lesser extent globally, Novo Nordisk should be able to withstand lower margins and increased competition. It's a drug company that income investors should get on their radars.

This top drugmaker's high-yield is too good to pass up

George Budwell(Pfizer): Among major drug manufacturers, Pfizer offers one of the highest yields at 3.8%. Despite this juicy yield, though, the drugmaker's stock has been stuck in neutral over the past year due to the politically charged drug pricing controversy, along with the slowing sales trajectory of its top two growth products: thepneumococcal bacteria vaccinePrevnar 13 and the breast cancer drug Ibrance.

While it's still too early to tell if the drug pricing concern has peaked now that the U.S. Presidential election is history, the fact remains that Pfizer's top line growth is projected to dip from a little over 8% this year to a far less compelling 4.7% as a result of its leading growth products cooling off. In other words, there are some good reasons to steer clear of this particular pharma stock.

The odd part of the story, however, is Pfizer is actually a much better buy now than it has been in years. In short, Trump's corporate tax proposal stands to benefit this pharma giant enormously by allowing it to repatriate its mountain of cash stored overseas. If so, Pfizer could go on a M&A frenzy (even more than it has been of late), pour even more cash into its vast share buy back program, or increase its payout. In fact, the drugmaker could probably take a stab at all three activities simultaneously, if it's indeed able to ship back most or all of its overseas cash.

Although there's no guarantee that Trump's tax proposal will translate into policy, Pfizer's already healthy yield and modest revenue growth make it worth buying on the offhand chance that things do go its way on the hot-button topic of foreign profits.

Big Blue's big dividend

Tim Green (International Business Machines):Historically, IBM hasn't been a great dividend stock. For most of the past two decades the stock sported a lackluster dividend yield, despite a long record of dividend increases. The situation changed a couple of years ago. IBM stock began to decline, driven down by slumping revenue and earnings. The stock has recovered a bit since bottoming out earlier this year, but it still offers a solid 3.4% dividend yield.

IBM's transformation into a cloud and cognitive computing powerhouse is making progress, but the result has been years of revenue declines that have no doubt tested the patience of long-term investors. IBM expects to produce at least $13.50 per share in adjusted earnings this year, well below its previously abandoned goal of generating $20 of EPS by 2015. But even with earnings depressed, the dividend accounts for just 42% of adjusted earnings. Even without much earnings growth, IBM can continue to grow its dividend.

IBM stock is not nearly as cheap as it was earlier this year, when the dividend yield reached 4.25% and the stock was trading for less than 10 times earnings guidance. But it's still a great dividend stock for investors willing to wait out the company's transformation.

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George Budwell owns shares of Pfizer. Sean Williams has no position in any stocks mentioned. Timothy Green owns shares of IBM. The Motley Fool recommends Novo Nordisk. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.