The benchmark S&P 500 index is up an exciting 25.8% over the past year, but many of its components haven't participated in the gains. Nvidia and other members of the "Magnificent Seven" have been hogging all the attention.
While the most popular stocks rose to new heights, Pfizer (PFE 1.42%) and Realty Income (O +0.21%) fell a long way despite steadily rising dividend payouts. Both stocks have fallen far enough that they offer eye-popping yields above 5% at recent prices. Read on to see how scooping them up on the dips and holding them over the long run could boost your passive-income stream.
1. Pfizer
Pfizer stock soared on the back of Comirnaty, its COVID-19 vaccine, and Paxlovid, an antiviral treatment. The stock has fallen about 24% over the past 12 months because sales of these two products fell much faster than expected.
NYSE: PFE
Key Data Points
Sinking COVID-19-related product sales didn't stop Pfizer from raising its dividend for the 15th year in a row last December. At its beaten-down price, the company is offering an eye-popping 6% yield, with a good chance of seeing steady dividend raises in the decade ahead.
Pfizer expects adjusted earnings per share (EPS) to land in a range between $2.15 and $2.35 this year. That's more than enough to support a dividend payout currently set at $1.68 per share annually.
Investors can reasonably expect significant profit growth from Pfizer over the next couple of years. Last year, it acquired Seagen, a cancer drug developer with four commercial-stage products, for about $43 billion. In addition to soaring sales of Seagen drugs, Pfizer thinks it can eliminate enough overlapping roles between the two drugmakers to lower annual operating expenses by $4 billion by the end of the year.
Excluding losses related to Comirnaty and Paxlovid, Pfizer reported first-quarter sales that soared 11% year over year. Now that the heaviest losses from these products are in the rearview mirror, investors can look forward to significant dividend growth for at least another decade.
2. Realty Income
Realty Income is the largest net lease real estate investment trust (REIT) with shares that trade on public markets. The stock has fallen about 17% from a peak it set last summer. At recent prices, it offers a 6% dividend yield.
NYSE: O
Key Data Points
Shares of Realty Income distribute dividends monthly, but this isn't the only reason income-seeking investors like holding it in their portfolios. The REIT has raised its monthly payout every quarter since going public in 1994.
The stock has been beaten down because it's facing two significant challenges. In addition to a higher-interest-rate environment, which raises the company's cost of capital, its largest tenants are performing poorly. Trailing net income at Dollar General, its largest tenant, has fallen by about 40% over the past three years.
Over the past 12 months, Realty Income's second-largest tenant by rental revenue, Walgreens, reported a $6 billion loss, and its third-largest tenant, Dollar Tree, reported a $1 billion net loss.
Realty Income's largest tenants are going through a rough patch, but investors can rest easy knowing this REIT's portfolio is well-diversified. Its three largest tenants combined are responsible for less than 10% of total annual rental revenue.
Realty Income's largest tenants are underperforming but, as long as they can keep up with lease payments, this has little effect on their cash flow. Annual rent raises are written into the REIT's long-term leases, so investors can look forward to steadily rising dividend payouts for at least another decade.
