2 Unstoppable S&P 500 Dividend Stocks to Buy Before They Beat the Market Again

Investors looking for stocks that can reliably outperform the broader market should look to the pharmaceutical industry. The tailwinds pushing them forward are strong. In the U.S., about 10,000 people qualify for Medicare each week.

The United States is one of many developed countries with an aging population that is becoming increasingly dependent on prescription drugs. Here’s how AbbVie (ABBV -0.26%) AND AstraZeneca (AZN 0.06%) consistently outperformed the benchmark S&P500 index.

Data source: Yahoo! Finance. Table by author.

Whether you’re trying to build a passive income stream or outperform the market, these stocks have what it takes. Here’s how they can continue to outperform in the years to come.

1.AbbVie-pl

AbbVie has raised its dividend by a staggering 270% over the past 10 years, but it doesn’t trade like a stock that quickly raises its quarterly payout. At recent prices, it offers a 3.2% yield.

AbbVie shares have been under pressure since its previous lead drug Humira lost its patent-protected U.S. market exclusivity in 2023. Humira sales fell 33% year over year to $5.1 billion in the first half of 2024.

Declining Humira sales are a challenge, but AbbVie has done a pretty good job of reinvesting the profits it has generated. In 2019, the company launched Skyrizi for psoriasis and Rinvoq for arthritis, and those two drugs alone are making up for Humira’s losses.

Combined sales for both brands reached $7.3 billion in the first half of 2024 and are far from complete. In February, management told investors it expected Rinvoq and Skyrizi to generate more than $27 billion in combined annual sales by 2027.

Investors will be pleased to learn that Rinvoq and Skyrizi aren’t the only blockbuster drugs AbbVie has launched in recent years. For example, its oral migraine headache drugs Ubrelvy and Qulipta are expected to generate more than $3 billion in combined annual sales at their peak.

AbbVie shares are trading at about 17.9x the midpoint of management’s 2024 earnings expectations. That’s a historically high multiple for the company, but the pressure from Humira’s competition is starting to fade. With multiple growth drivers to boost earnings, investors who buy at recent prices have a good chance of seeing much higher gains over the long term.

2. AstraZeneca

AstraZeneca is an international drugmaker that doesn’t attract much attention from U.S. investors. That’s because its dividend payments are a bit unusual.

Instead of four equal quarterly distributions, AstraZeneca is insisting on two payments per year, with the larger portion to be announced with fourth-quarter results and payable in March. In July, the company raised its first interim distribution by 7.5% to $0.50 per American depositary receipt (ADR).

At recent prices, the stock offers a 1.9% dividend yield. That’s not particularly enticing right now, but the distribution could grow at the same rate as the company’s bottom line. AstraZeneca generated $7 billion in free cash flow over the past year and only needed 64% of that to meet its dividend commitment.

AZN dividend data by YCharts.

AstraZeneca has a number of growth drivers that could boost earnings and dividend payouts in the coming years. In the first half of 2024, sales of Farxiga, a drug for diabetes, heart failure and chronic kidney disease, rose 35% year over year to $3.8 billion. Sales of Calquence, a blood cancer drug, rose 27% to $1.5 billion, and Ultomiris, a drug for a rare disease, rose 32% to $1.8 billion.

Free cash flow has grown rapidly since 2020 and could continue to grow thanks to a hugely successful product pipeline. In the first half of 2024, AstraZeneca saw sales increase by more than 10% year-on-year across 21 different medicines.

With plenty of growth drivers to boost earnings and no significant patent cliffs to offset that, AstraZeneca expects earnings to rise by a percentage point in the mid-teens this year. Adding a few stocks to a diversified portfolio now seems like a smart move.

Cory Renauer has no position in any stocks mentioned. The Motley Fool has a position in and recommends AbbVie. The Motley Fool recommends AstraZeneca Plc. The Motley Fool has a disclosure policy.