Even the most reliable dividend payers can run into trouble once in a while. Whether it's bear markets, shifting legislation, or an unstable macroeconomic environment, there are plenty of reasons an otherwise-stable company might see its stock stumble temporarily.
When you have the chance to buy those rock-solid businesses, it's typically a good idea to take advantage of the opportunity. So let's analyze a pair of companies that have dented stock prices, but excellent long-term prospects to recover the losses and continue to pay out to their investors.
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1. Pfizer
Pfizer's (PFE 1.42%) shares are down by 20.3% in the last 12 months, and if you're willing to hold on to them for the long run, this stock is a great option for buying on the dip to gain a passive income stream. The company gained notoriety recently thanks to Comirnaty, the best-selling coronavirus vaccine it developed in conjunction with BioNTech. That drug was profitable for Pfizer over the past two years, but the company is likely to see revenue come from elsewhere in the future. Overall revenue of $100.3 billion in 2022 was buoyed enormously by coronavirus medicine sales. By 2030, management predicts its top-line revenue to total between $70 billion and $84 billion.
NYSE: PFE
Key Data Points
Management acknowledges that the business isn't expecting to make as much as it brought in last year for quite some time now that the demand for its coronavirus medicines is tapering. That's the main reason Pfizer's stock is down right now. Its near-term growth is expected to go downward.
But more revenue is indeed coming, even if it means a big investment in acquisitions -- like the business is planning to do with its purchase of oncology drug developer Seagen for $43 billion in cash. With Seagen's portfolio of pharmaceuticals (and perhaps a couple of other acquisitions still TBD) and Pfizer's pipeline continuing to churn out new medicines, it could onboard as much as $45 billion in added annual revenue by 2030.
So Pfizer has enough upcoming growth that isn't going anywhere despite its revenue probably crashing sharply in 2023. That means it's a fairly safe investment for those seeking a dividend. Its forward dividend yield is 4% at the moment, and since early 2013, its payout per share has grown at an average pace of 6.1% annually, though that rate may be somewhat slower for the next couple of years. Furthermore, its payout ratio is a comfortably low 29.2%, which means that its net income can drop by quite a bit and it'll still have plenty of overhead to keep paying and increasing its dividend.
2. NextEra Energy
NextEra Energy (NEE 0.24%) is another rock-solid dividend stock that's worth buying while it's around 9% cheaper than a year ago. The company owns and operates nuclear, oil, and gas-based power plants, wind farms, and fields of solar panels across the U.S., that are worth $159 billion in total. It also pays a dividend that yields 2.4% right now.
As the total return of its shares over the last year just barely beat the market's decline of 9.9%, the bear market is likely to blame for its dented share price. And as the world pivots to using more renewable energy sources, NextEra has a long runway for growth ahead, not to mention a strong track record for performance in recent history.
NYSE: NEE
Key Data Points
In 2022, its net income was $4.1 billion, up by more than 117% from 10 years ago, earned by diligent investment in new generation build-outs that it has no intention of stopping. Thanks to new legislation promoting green energy, like the Inflation Reduction Act, NextEra anticipates its production costs for wind and solar will drop by 9% and 11%, respectively.
This will allow it to continue growing while spending less money and passing more to shareholders in the process. Plus, there might be similar legislation in the pipeline in the coming years, which would be another tailwind.
Moving forward, NextEra expects to expand its earnings per share by up to 8% per year, alongside dividend hikes of around 10% per year through at least 2024, and likely through 2026. And with a payout ratio of around 81% and few headwinds in sight other than servicing the cost of its $65.3 billion in debt, it'll probably continue to grow and return capital to its investors for even longer than that, which is one more reason it's a good purchase right now.
