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Is It Too Late to Buy These 2 Brilliant Passive Income Stocks?

Motley Fool - Mon Feb 12, 6:30AM CST

If you're looking to generate passive income in the new year, there are plenty of ways to do so that don't involve starting a second job or freelance gig. As you work toward your short-term and long-term financial goals, investing is one of many ways you can grow wealth with time.

Dividend stocks can help you build your passive income streams, because you can benefit not just from the share price performance of the business, but from regular (usually quarterly) dividend distributions. There are dividend stocks you can buy across a range of industries, from consumer goods to healthcare to real estate.

When you're looking at dividend stocks, a favorable yield isn't the only factor you should evaluate. In addition to ensuring you choose dividend stocks that are backed by solid businesses and moderate payout ratios, you should also make sure the company has a solid history of paying its dividend through economic thick and thin, and raising it with the passage of time.

It's always a good time to invest in brilliant passive income stocks. Here are two such fantastic dividend payers you'll want to consider for your portfolio.

1. AbbVie

AbbVie(NYSE: ABBV) yields 3.55% for investors at the time of this writing, above the average payout of the stock trading on the S&P 500 (around 1.5%). Because the company is a spin-off of healthcare giant Abbott, it carries its former parent company's storied dividend track record with it, which happens to be 52 consecutive years of dividend increases.

Since AbbVie spun off from Abbott over a decade ago, it has raised its dividend every single year. In the trailing 10-year period, that dividend has risen by roughly 270%. The stock has delivered a total return of 452% to faithful shareholders over the past decade as well.

The company is currently dealing with the financial effects of loss of patent exclusivity on its long-term blockbuster arthritis drug Humira -- a fact that has driven revenue and profits down. But AbbVie has plenty of other top-selling products in its arsenal. It also has potential blockbuster products in its pipeline that can stem the tide in the years ahead. The company still reported revenue of $54 billion in the full-year 2023, and profits just shy of $5 billion, helped by an 18% increase in revenue from its neuroscience products portfolio.

AbbVie also boasts other heavy-hitters like Skyrizi and Rinvoq. Skyrizi is a monoclonal antibody approved to treat numerous ailments, including plaque psoriasis and Crohn's disease. Rinvoq is a type of drug called a Janus kinase (JAK) inhibitor. It treats a variety of inflammatory disorders, including psoriatic arthritis, atopic dermatitis, and ulcerative colitis. These drugs have years of patent exclusivity left in them, and management previously said that both were expected to surpass the sales peak of Humira. This is no small feat, considering Humira was the world's top-selling drug for years and raked in $21 billion in 2022 alone. Sales of Skyrizi and Rinvoq rose by respective amounts of 50% and 57% in 2023 from 2022, reaching a combined sales total of $11.7 billion in the 12-month period.

The company also recently announced two key acquisitions that should add to its balance sheet potential in the years ahead. One is of ImmunoGen, a biotech company that makes antibody-drug conjugates to treat various cancers. The acquisition will add ImmunoGen's ovarian cancer drug Elahere to AbbVie's oncology portfolio. This product is on track to generate sales of approximately $1.4 billion before the end of the decade, according to GlobalData.

The other big upcoming acquisition for AbbVie is of Cerevel Therapeutics, which will add a range of new candidates to its portfolio across disease areas, including mood disorders and Parkinson's. While AbbVie is in a transition period right now as it balances the effect of Humira sales declines with existing and emerging blockbusters, the business still looks like a solid buy-and-hold investment. The company had roughly $14 billion in cash on hand at last record. That dividend is icing on the cake for the long-term investor.

2. Johnson & Johnson

Johnson & Johnson (NYSE: JNJ) is another mainstay healthcare business with an incredible history of successively maintaining and raising its dividend. The pharmaceutical giant has not only paid out but raised its dividend every single year for 61 years and counting.

Currently, the stock boasts a yield of around 3%. That dividend has helped to drive a total return of around 120% for investors over the trailing decade. And looking at the last 10 years, Johnson & Johnson has raised its dividend by approximately 80% in that time frame.

Johnson & Johnson has gone through some changes of its own in recent years. It spun off its consumer health business into a new publicly traded company called Kenvue last year. The move accomplished a few goals for Johnson & Johnson.

While the consumer health business was known for household name brands like Tylenol, Band-Aid, and Listerine, margins are low and growth had lagged significantly behind its pharmaceutical and medical device segments. The spinoff left Johnson & Johnson with a substantial 9.5% equity stake, plus a cash windfall of $13 billion.

Johnson & Johnson reported total sales of around $85 billion in the full-year 2023, a 6.5% increase from the prior year. The company also brought in net income of $13 billion, which was down from 2022, but still not a figure to scoff at. Adjusted net earnings for the 12-month period came in at $25 billion, a 6.8% year-over-year increase. Broken down by segment, net sales in Johnson & Johnson's Innovative Medicine business rose 4.2% from 2022, while MedTech sales rose 10.8% from 2022.

With a portfolio of top-selling drugs as well as a lineup of emerging medicines in disease areas ranging from inflammatory disorders to oncology, this tried-and-true business can deliver steady growth to investors for years to come. If it's stable gains and a reliable dividend you're looking for, Johnson & Johnson looks like a top stock to add to your long-term buy-and-hold portfolio.

Should you invest $1,000 in AbbVie right now?

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Rachel Warren has positions in AbbVie and Johnson & Johnson. The Motley Fool has positions in and recommends Abbott Laboratories and Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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