Passive income stocks are a proven way to cushion your portfolio against market volatility. In addition, top-shelf dividend play also tends to outperform other asset classes in bull markets.
However, not all dividend stocks are cut from the same cloth. The best passive income strategies are defined as stocks that can provide both bear market downside protection and bull market capital appreciation, and are inherently tied to companies with solid free cash flow.
With this background in mind, here are two top-tier passive income stocks that investors won’t regret buying in 2023.
AbbVie (ABBV 0.59%) is a large pharmaceutical company with a strong reputation as a dividend growth stock. Since its inception in 2013, pharmaceutical companies have averaged annual dividend increases of around 30%. In addition, AbbVie has generated average net free cash flow of $16.7 billion for the past four consecutive years, thanks to its diverse portfolio of beauty, oncology, eye care, immunology and neuroscience products.
Nonetheless, AbbVie’s stock has plunged in the first three weeks of 2023, down 7.4% as of this writing. Concerns about the drug maker’s ability to overcome the upcoming US biosimilar launch of Humira, its flagship immunotherapeutic, have put some investors on the sidelines this year. It’s not without benefits. The pharmaceutical company’s sales are expected to fall 6.8% this year compared to 2022.
However, there are two clear reasons income investors should jump on this drop. First, AbbVie has solid plans to surpass his Humira as a primary source of revenue. The plan leans toward newer immunologics such as Skyrizi and Rinvoq, leverages the aesthetics portfolio from his acquisition of Allergan in 2020, and focuses on strengthening an already top-tier hematology franchise. increase. AbbVie expects the strategy to return the company to high levels of top-line growth as early as 2025, according to internal estimates.
Second, AbbVie’s management has clearly demonstrated its commitment to paying out one of the most generous dividends in the industry. For that matter, pharma annualized yields are currently rising against his 4% mark, the highest in the large-cap biopharmaceutical space. Not many top-tier dividend stocks offer such high yields and built-in security.
In short, AbbVie will eventually recover from this weakness. And in the long run, this dividend stock should return to form as a market-beating vehicle for patient investors.
Amgen is another big biopharmaceutical stock that should appeal to the passive income group. A biotechnology pioneer, the company boasts a highly diversified product portfolio comprising oncology, immunology, general medicine and biosimilars.
In the first nine months of 2022, Amgen increased its dividend yield by 10%, repurchased $6 billion of its stock and made two significant acquisitions with ChemoCentryx and Horizon Therapeutics. Amgen has averaged approximately $10 billion in net free cash flow annually over the past four years.
What are the risks? Amgen has two knocks. First, the company does not have a bona fide flagship drug. Instead, Amgen relies on a numbers approach to deliver moderate levels of top-line growth. This strategy has the advantage of avoiding a significant drop in revenue from star drugs losing exclusivity, but it also tends to reduce annual revenue growth.
Second, Amgen is now seeing a significant increase in product sales. Biotech spent about $28 billion on Horizon Therapeutics last year to combat the impact of counterfeit drugs on its primary revenue stream.
What’s the point? Amgen has stabilized its ship with its Horizon acquisition, and its pipeline could offer multiple new growth products in the coming years. Similarly, income investors shouldn’t hesitate to take advantage of the company’s above-average annual yield, which is currently at 3.24%.