3 Dividend Stocks to Put on Your Shopping List

By Keith Speights Markets Fool.com

There's just something nice about stocks that pay you to own them. Dividends make a huge difference in overall investing returns, especially over long periods of time. Few dividend stocks are are as attractive right now as AbbVie (NYSE: ABBV), Pfizer (NYSE: PFE), and Novartis (NYSE: NVS). Here's why you should consider putting these three big drugmakers on your shopping list.

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Humira plus more

AbbVie's dividend yield of 4.13% is good. The company's steady increases of its dividend is even better. Since its spinoff from Abbott Laboratoriesin 2013, AbbVie has increased its dividend by 60% -- including a 12.3% hike in October.

More dividend increases could be in store. AbbVie currently only returns 60% of its earnings in the form of dividend payments. That leaves plenty of room for growth, even if the company's earnings don't grow.

However, AbbVie's earnings will likely grow. Wall Street analysts project average annual earnings growth of more than 15% over the next five years. One important reason for this optimistic outlook is the continued strength of Humira. Sales for the autoimmune disease drug were nearly $11.8 billion in the first nine months of 2016, up 14.5% over the prior-year period.

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Cancer drug Imbruvica is another key ingredient to AbbVie's success. Sales for the drug tripled year over year in the first nine months of 2016 to over $1.3 billion. AbbVie expects Imbruvica to generate $5 billion in sales by 2020.

AbbVie's pipeline includes around 50 programs, 12 of which are in late-stage development. One notable late-stage prospect is elagolix. Analysts project that elagolix, which is in phase 3 studies targeting treatment of endometriosis and uterine fibroids, could generate peak annual sales of over $4 billion if approved for both indications.

Brighter days ahead

Pfizer's dividend yield of 3.9% isn't too far behind AbbVie's. Although the big pharmaceutical company did cut its dividend during the financial crisis of 2008 and 2009, it's been a steady rise since then. Pfizer raised its dividend by 6.7% recently. The first quarter of 2017 will be the 313th consecutive quarter where the company has paid a dividend.

A quick glance at Pfizer's dividend payout ratioof 118% might raise eyebrows. However, the company is generating enough cash flow that its dividend shouldn't be in jeopardy. Also, despite anemic earnings growth over the past few years, Pfizer appears poised for better days ahead.

Several current drugs in Pfizer's lineup are posting solid growth. Sales for top-selling Lyrica increased 15% year over year in the first nine months of 2016 to $3.1 billion. Autoimmune disease drug Xeljanz generated sales of $649 million during the period, up nearly 85% from the prior year.

Pfizer's fastest growth is coming from Ibrance. Sales for the cancer drug soared 265% year over year in the first nine months of 2016 to $1.49 billion. Analysts think Ibrance will eventually reach peak annual sales between $3 billion and $5 billion.

However, Pfizer must make up for some drugs that aren't performing so well, especially its legacy drugs. The company's strategy to plug the gap is through acquisitions and research. Pfizer made two key acquisitions in 2016, buying Anacor Pharmaceuticals and Medivation. The former acquisition gave Pfizer access to promisingdermatitis atopiccrisaberole, while the latter deal included prostate cancer drug Xtandi.

Pfizer's pipeline includes 94 clinical programs, eight of which are awaiting regulatory approval and 33 of which are in late-stage development.The company could have several potential blockbuster drugs in that mix if approved, including cancer drug avelumab and the aforementionedcrisaberole.

Huge pipeline

Novartis is just slightly behind Pfizer with a dividend yield of 3.82%. The Swiss drugmaker has increased its dividend every year since its formation in 1996 with the merger of Ciba-Geigy and Sandoz.

Investors might get a little nervous looking at the company's payout ratio of 95.7%. Novartis borrowed money this year to fund its dividend payments. However, like Pfizer, the company continues to generate plenty of cash flow -- $6.5 billion in the first nine months of 2016. Also, Novartis is coming off a period where its earnings declined, but should be able to grow earnings in the years ahead.

The big pharmaceutical company is seeing strong growth for several products, including autoimmune disease drug Cosentyx and multiple sclerosis drug Gilenya. An even bigger story for Novartis, though, is its pipeline, which includes over 200 programs in clinical development.

Novartis expects to submit three new drugs for regulatory approval in 2017 plus six new indications for current products. In addition, the company intends to file for approval for three biosimilars next year. That's just the beginning. Between 2018 and and 2019, Novartis expects to submit 17 candidates for approval.

More than dividends

The consensus among Wall Street analysts is that AbbVie, Pfizer, and Novartis should see their shares increase by double-digit percentages within the next 12 months. While these estimates could be overly optimistic, I think all three stocks should perform well over the next several years.

Even if they don't achieve the kind of growth Wall Street projects, the dividends paid out by these companies should keep flowing. Add AbbVie, Pfizer, and Novartis to your shopping list. I don't think you'll experience buyer's remorse.

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