Nearing Retirement? These Stocks Will Pay You For Life

While government programs help retirees replace some of their income once they stop working, these initiatives aren’t meant to fund all of people’s expenses in their golden years. That’s why many retirees seek additional income. One place to look is the stock market. Investing in reliable dividend stocks can be a great source of steady passive income, but only if the stocks in question have the tools to distribute growing payouts for a while.

Let’s look at two companies that can do that: AbbVie (ABBV 0.59%) and Gilead Sciences (GILD 0.49%).

1. AbbVie

AbbVie is well-known among dividend investors thanks to its solid business, strong prospects, and excellent dividend profile. Let’s start with the company’s business. AbbVie markets a range of drugs across several therapeutic areas, although its top field of expertise is arguably immunology. The company recently lost U.S. patent protection for its blockbuster therapy Humira. That’s why AbbVie’s sales have been declining and why it has performed poorly on the stock market since January.

However, the drugmaker’s immunology portfolio also features autoimmune disorder drugs Skyrizi and Rinvoq. These two medicines are doing just fine. Relatively recent approvals like migraine treatment Qulipta and older products like cancer drug Venclexta are also contributing meaningfully to AbbVie’s top line. 

In the first quarter, the company’s revenue declined by about 5% year over year to $13.9 billion. Considering Humira made up almost 37% of its revenue last year, AbbVie is managing this headwind pretty well.

Furthermore, the company’s pipeline is deep, featuring dozens of programs at all stages of development. 50 of them are in mid- or late-stage studies. That’s what makes AbbVie’s prospects attractive: Its ability to develop newer medicines. Even a handful (or so) of approvals per year could meaningfully move the needle for AbbVie, especially over the long run. So investors shouldn’t worry too much about the declining revenue — AbbVie will reverse that in time.

Lastly, the drugmaker’s dividend history is excellent. Since it split from Abbott Laboratories in 2013, it has hiked its payouts by 270%.

ABBV Dividend data by YCharts

And counting the time it spent as a division of its former parent company, AbbVie is a Dividend King currently on its 51st straight year of payout increase. The company’s yield of 4.03% is highly competitive, and its cash payout ratio of 42% looks quite reasonable. AbbVie is an excellent choice for retirees, as the company seems likely to continue raising its dividends for a long time. 

2. Gilead Sciences 

Gilead Sciences is a leading biotech with a foothold in the HIV market. In the second quarter, the company’s revenue increased by about 5% year over year to $6.6 billion. That doesn’t tell the whole story, since sales of its COVID-19 medicine, Veklury, are dropping. Excluding its coronavirus antiviral, Gilead’s top line jumped by 11% year over year, a solid performance for a biotech giant.

The company’s most important product is Biktarvy, an HIV medicine that leads the U.S. market. Biktarvy’s sales for the period jumped by 17% year over year to $3 billion — or about 45% of the company’s revenue. Gilead Sciences’ total HIV revenue for the quarter increased 9% year over year to $4.6 billion. 

Should investors worry about the biotech’s over-reliance on this segment? I don’t think so. The company has been a leader in this field and should continue to develop newer and better medicines. Its latest brand new approval in this space — Sunlenca, which won the green light in the U.S. in December and could become a key growth driver — is a good example. Some drugmakers find tremendous success by focusing exclusively or primarily on a single therapeutic area.

Second, Gilead’s oncology portfolio is growing rapidly. Its sales jumped by 38% year over year to $728 million in the second quarter. That represents a small percentage of the biotech’s total top line, but it should capture a larger portion of it in time. Gilead Sciences’ dozens of programs will add to its ability to grow its revenue and earnings and support its dividends.

The company’s payouts have moved in the right direction, while its dividend yield currently tops 3.89%.

Chart showing Gilead Sciences' dividend rising since 2016.

GILD Dividend data by YCharts

Because it provides medicines that physicians won’t stop prescribing, Gilead Sciences can survive the most challenging economic conditions while still paying — and raising — its dividends. That’s why retirees can safely add this stock to their portfolios and sleep easy at night, not worried about their passive income being suspended.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories and Gilead Sciences. The Motley Fool has a disclosure policy.

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