Legal & General

Looking purely from a yield perspective, Legal & General (LSE:LGEN) shares are among the best in the FTSE 100. Their dividend yield is currently a very attractive 8.8%.

Now, there are risks to holding the company’s shares. As it’s in the financial services industry, it performs quite cyclically and can underperform during times of economic uncertainty. With UK gilts rising, there’s concern about the state of the country’s finances.

Legal & General has seen its shares falling by 7.4% over the last month, suggesting there’s pessimism resulting from this.

However, income investors shouldn’t be so concerned about this. That’s because they understand that to obtain the dividend income from the financial services firm, they can pay 7.4% less than they had to this time last month.

This is especially the case if they have a strong outlook for the UK economy over the long term.

Rolls-Royce

You might be wondering why I have included Rolls-Royce (LSE:RR) shares here. Its dividend yield of 0.9% certainly pales in comparison to the Footsie average of 3.2%.

However, this is because the hallmark of a good dividend-paying stock isn’t just its yield but also its fundamentals. I think the aircraft engine manufacturer has one of the best business fundamentals in the UK. Plus, investors get a dividend on top as a bonus.

One of my favourite parts of its business model is its investments in small modular reactors (SMRs). It has recently signed deals with the Czech and UK governments to supply them with SMRs. It’s also one of the two SMR companies shortlisted by Sweden to use for its nuclear programme.

CEO, Tufan Erginbilgic, estimates the world will need 400 SMRs by 2050. At a cost of up to £2.2bn each, this could be a huge market for the firm.

There is a big risk, however. SMRs are a largely unproven technology. If they prove to be an unsuccessful source of energy, it could very much hurt Rolls-Royce shares.

AbbVie

The final company I want to discuss is the US pharmaceuticals giant, AbbVie (NYSE:ABBV). With a dividend yield of 3.1%, there’s certainly an opportunity to make a second income with its shares.

There was a concern that the company would struggle when it lost exclusivity for its top-selling drug Humira in 2023.

However, this hasn’t happened. In the first half of 2025, Humira sales fell by 54.7% to $2.3bn. But the company’s new top-selling drugs, Skyrizi and Rinvoq, more than made up for this, rising by 65.8% and 48.5%, respectively. Because of this, the firm saw its overall revenue rise by 7.4%.

There are also other growth opportunities, such as the cancer drug Elahere, which saw its sales rise by 75.5% to $338m.

With Trump’s tariffs though, the company could see its margins hit, especially as its drugs aren’t made exclusively in the US, and they need to source some ingredients abroad.

However, with a track record of raising dividends for 53 consecutive years, it’s still a great passive income option to consider.

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However, I’ve uncovered three US stocks that could secure investors decent value via dividends in 2024.

AbbVie

AbbVie (NYSE:ABBV) is a pharmaceutical giant in the US and the largest company on this list with a $292bn market cap. In addition to being a good dividend payer, it’s a powerful growth stock, up 110% in the past five years.

Its growth could be affected from that one thing that always threatens pharma firms – patents expiring. The patent for AbbVie’s top-selling product, Humira, expired last year, allowing a flood of biosimilar products into the US. It also faces strong competition from Johnson & Johnson and Procter & Gamble, two larger US pharma giants with higher revenue.

Still, AbbVie is doing well enough to pay a decent 3.8% dividend yield, despite earnings per share (EPS) at half the cost of its dividend per share ($2.72 compared to $6.20). Yet that hasn’t affected payments – they’ve been stable and consistent for the past 10 years, increasing from $0.42 to $1.55.

Verizon

Verizon (NYSE:VZ) is one of the largest telecom companies in the US, providing mobile, broadband and wireless services to retail and business clients. It’s the 47th largest company on the S&P 500, with a market cap of $167.8bn and a $39.91 share price. That’s higher than fellow telecom stalwarts AT&T and Comcast but lower than key competitor T-Mobile, which places 40th with a $191bn market cap. 

Verizon’s share price growth has been slow of late, with only a 3.1% gain in the past year. I believe the company is facing a saturated market and the high cost of implementing new 5G technology. 

Fortunately, it has a great 6.7% dividend yield, albeit with a slightly high payout ratio of 96%. That’s because its EPS and dividend per share are very close, at $2.76 and $2.66, respectively. Still, it’s got a solid track record of making payments, with a $0.67 dividend due on 1 May.

IBM

Arguably the world’s oldest computer company, IBM (NYSE:IBM) is still pushing boundaries despite stiff competition from newcomers in the tech industry. It’s the smallest of the three companies on this list, just below Verizon with a $166.4bn market cap.

Although it has a lasting reputation and strong market presence, IBM’s pivot towards AI and cloud computing has been costly. Debt has been rising while revenue has declined, threatening the firm’s profitability. With Microsoft and Amazon taking the lion’s share of this market, IBM may struggle to remain relevant. 

But for now, it’s a strong dividend payer in the US market. The 3.6% yield isn’t great but still better than the S&P 500 average of 1.35%. It currently pays out $6.64 per share, which is sufficiently covered by an EPS of $8.20. So it’s unlikely that the dividend will be cut any time soon.

The post 3 top US dividend stocks for value investors to consider in 2024 appeared first on The Motley Fool UK.

Companies that pay dividends tend to be more profitable and stable than growth-focused firms. This gives them room to withstand economic instability. But some have strong growth prospects too.

Furthermore, dividend shares tend to perform better than the broader market during inflationary periods. Goldman Sachs conducted research that found 77% of the S&P 500’s returns during the 1970s (a period of high inflation) resulted from dividends and dividend reinvestment.

AbbVie (NYSE: ABBV) and Coca-Cola (NYSE: KO) are two dividend shares I’m buying more of.

AbbVie

AbbVie is a pharmaceutical giant in the US that specialises in the research and production of innovative drugs.

It has faced some stumbling blocks recently, as its top-selling drug Humira recently lost its patent. This accounted for $21.2bn of sales last year, 37% of its total revenue.

Therefore, with the introduction of lower-cost versions from the competition, it’s no surprise that we saw overall revenue for the second quarter fall by 5% year on year.

However, by 2025 management expects to return to growth with sales of Rinvoq and Skyrizi, two of its fast-growing drugs, to make up for the lost revenue from Humira.

AbbVie’s pipeline is also vast. It has a total of 50 programmes at mid- or late-stage research in high-growth areas such as neuroscience, aesthetics, eyecare, virology and oncology.

So I see ample growth opportunities for AbbVie to take advantage of.

It’s also a dividend king, currently on track to deliver 51 years of consecutive payout rises, originally as part of Abbott Laboratories. Since it was spun out in 2013, it has raised its dividend by an incredible 270%.

With a dividend yield of 4%, I think AbbVie shares are a great way to generate passive income. For perspective, the S&P 500 only has a yield of 1.53%.

Coca-Cola

As the largest beverage company in the world, Coca-Cola pulled in $42.84bn of revenue in 2022. We’d be forgiven for thinking it’s too big to continue generating meaningful growth. However, management is guiding for growth of 8-9% in 2023.

What I like about Coca-Cola is that it has products that consumers love and continue to buy. Its excellent brand recognition is also a positive point.

There are some short-term issues it faces though. Namely, it’s starting to feel the effects of inflation. We can see this as earnings per share (EPS) growth is expected to lag revenue expansion, only growing by 5-6%.

However, I believe that this is just a short-term issue. Once inflation cools down, EPS growth should return to higher levels.

Moreover, Coca-Cola also claims the title of dividend king, raising its dividend for an impressive 61 consecutive years.

It boasts a dividend yield of 3.1%, easily higher than that of the S&P 500 as a whole.

Now what

AbbVie and Coca-Cola are two very stable and profitable companies that continue to have great growth prospects.

It’s important to note that dividends aren’t guaranteed. However, both companies have provided a very reliable dividend historically and I expect them to continue doing so, which is why I will continue to buy their shares.

The post 2 great dividend shares I’m buying now appeared first on The Motley Fool UK.

For example, Goldman Sachs recently conducted research where it found that three-quarters of the S&P 500’s 77% returns during the inflationary 1970’s was due to dividends and dividend reinvestment.

Furthermore, dividend-paying companies are significantly profitable, whereas unprofitable companies will be hit the most by economic instability. This is because profitable companies have room to withstand cost and inflationary pressures.

With this in mind, let’s take a look at two dividend shares I’m buying more of.

AbbVie

AbbVie (NYSE: ABBV) is a pharmaceutical giant in the US originating due to a spin-off from Abbott Laboratories in 2013. It specialises in the research and production of innovative drugs.

AbbVie is also a dividend king with 50 years of consecutive pay-out raises. Over the last five years, dividends also increased by an incredible 120%. It also boasts a dividend yield of 4% compared to just 1.82% from the S&P 500 as a whole.

AbbVie is also very cheap, currently trading at a forward price-to-earnings (P/E) ratio of just 12.

However, AbbVie faces some stumbling blocks. Its top selling drug, Humira, is losing its patent next year, allowing competition to produce biosimilar drugs and eat away at the $17bn it brought AbbVie in 2021. This could severely affect its revenue growth.

I’m glad that AbbVie has therefore planned for this, with two potential replacements in its pipeline. Management has provided guidance of more than $15bn in expected sales of Rinvoq and Skyrizi, its new drugs, by 2025. I’m also confident AbbVie can continue its strong growth due to the growth prospects of its general pipeline.

With a projected dividend pay-out ratio of 41% in 2022, AbbVie should be more than able to continue supporting and growing its dividend.

US Bancorp

U.S. Bancorp (NYSE: USB) is the fifth largest bank in the US, focusing on traditional banking services, such as deposit growth and providing loans. Its rigorous nature in only providing high-quality loans helps it achieve an impressive return on equity. This gives it a competitive advantage over competitors.

It also has a dividend yield of 4.4% and 11 years of consecutive dividend hikes. With a pay-out ratio of 36%, it’s also able to support and raise its dividends. Plus, with a forward P/E ratio of just 8, U.S. Bancorp is ridiculously cheap right now.

Furthermore, due to higher interest rates, U.S. Bancorp is generating higher net interest income (NII). NII is the difference in revenue of a bank’s interest-bearing assets with the expenses arising from its interest-bearing liabilities. By increasing interest rates on its loans, NII and thus profit likewise increase.

However, when interest rates are high, consumers prioritise saving money rather than taking out loans. This could potentially push NII and thus profit down.

Now what

Inflation and interest rates are rising, which will affect many companies. However, AbbVie and U.S. Bancorp are very profitable, allowing them to better weather the current economic storm. Their low pay-out ratios mean they can also maintain and even grow their dividends. Both shares are also cheap and have strong growth prospects, which is why I’m buying more shares of these companies today.

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Positive outlook, but things need to keep going right

AbbVie (NYSE: ABBV) has and continues to be heavily reliant on Humira, which was responsible for 40% of 2020 revenue, and competes against biosimilars in Europe. Biosimilar entry in the US is anticipated in 2023, and the expectation is that Humira sales will take a further substantial hit. So why is the outlook positive for this pharma stock?

AbbVie’s $63 billion acquisition of Allergan in May 2020 was met by the market with a degree of concern, but there is little doubt that it offered AbbVie some much needed diversification. More notably, however, AbbVie has developed two products that look set to secure its leadership position in immunology in a post-Humira world. Skyrizi and Rinvoq have shown strong uptake in their initial approved indications (psoriasis and rheumatoid arthritis, respectively), and AbbVie is vigorously pursuing additional indications, which should come through in the next 24 months. However, Rinvoq’s approvals for psoriatic arthritis and atopic dermatitis have each been pushed back by a quarter this year, owing to regulatory delays as the FDA investigates safety concerns related to the JAK-inhibitor class.  

A high-risk bet that should pay off in the short term (unless it doesn’t)

Over a decade ago, plucky upstart Amarin (NASDAQ: AMRN) gained FDA-approval for Vascepa, to treat patients with severely elevated triglycerides – a form of cholesterol that contributes to cardiometabolic disease. So far, so uneventful. Fast-forward to December 2019, and the label for Vascepa was expanded to include patients at high cardiovascular risk – effectively growing the potential market for the drug many-fold. Amarin’s share price sky-rocketed, at a rate rarely seen in mature pharma stocks. However, a court ruling in March 2020 in favour of generics challengers caused Amarin’s share price to plummet to a level it has never recovered from.

With the US market for Vascepa no longer the cake-walk it should have been, all eyes are now on Europe. Vascepa received EMA approval for the expanded indication in March of this year, and is set to launch first in Germany. The absence of generic competition, Vascepa’s first-in-class approval for a demonstrably large patient pool, and robust clinical outcomes data all paint a rosy picture. The risk lies in Amarin’s ability to pull it off, as a relatively small, US-based company with no other in-line products, and a handful of generics challengers snapping at its heels in its home-market of the US.

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And why not? After all, the underlying business seems to be doing well.

Cyclical recovery?

Before emerging as a separately listed company during 2012, Direct Line made underwriting losses in the wake of the global financial crisis. The firm returned to underwriting profit during 2012, and built on that improvement in 2013. The current year seems to be going well too, but we’ll learn more with the third-quarter interim management statement due on Friday 31 October.

Fluctuating profits reveal the firm’s inherent cyclicality. The financial companies, such as insurers, can see wild share-price fluctuation as profits ebb and flow. That’s why the firm’s valuation bothers me a bit. The forward dividend yield is running at about 7.7% for 2015, and City analysts expect forward earnings to cover the payout just over 1.2 times.

That’s seems a too-good-to-be-true kind of yield, and the thin cover from earnings makes it look vulnerable if earnings start to slip. Is the market trying to tell us that it expects forward earnings to decline soon?

Property-linked investing

Where do you think UK property values are heading? It’s another highly cyclical investing game to play, but if you want to get involved, without all the inconvenience of rolling your sleeves up and actually buying bricks and mortar, you could invest in a property firm such as Mountview Estates (LSE: MTVW).

I love the simplicity of the way the firm describes its activities on its own website: “Mountview Estates P.L.C. is a Property Trading Company.  The Company owns and acquires tenanted residential property throughout the UK and sells such property when it becomes vacant.”            

This is a what-you-see-is-what-you-get investment proposition, with potential hidden value on the balance sheet, and high insider ownership by the controlling family. The firm records properties at cost, implying the market value of assets is in excess the company’s 7740p share price. But I think we should be careful, because the share-price chart is peaking where it did in 2007 — just before the last financial crash.

Make no mistake, if property values fall, so does Mountview’s share price — potentially a long way. The firm is cyclical to the very core.

Pharmaceuticals

FTSE 100 drugs firm Shire (LSE: SHP) (NASDAQ: SHPG.US) stands out among its London-listed peers for its fast-growing credentials. The firm is best known for the attention deficit disorder treatments Adderall and Vyvanse, and is a young, high-energy upstart founded in 1986 and listed on the stock market as late as 1996.

City analysts following the firm expect earnings to grow by 28% this year and by a further 10% during 2015. Yet the shares took a steep dive during October when US operator AbbVie Inc (NYSE: ABBV.US) walked away from a takeover deal.

The shares’ valuation looks more attractive now than for a long time, with the forward P/E rating  running at about 18 for 2015.

The post Should I Invest In Direct Line Insurance Group PLC, Mountview Estates plc And Shire PLC Now? appeared first on The Motley Fool UK.

But investors expecting Shire’s share price to slump lower when markets opened this morning were disappointed (or maybe relieved) — more than anything else, markets hate uncertainty, and today’s news brings an end to the uncertainty we’ve seen over recent weeks.

Better still, the failed deal comes with an added sweetener for Shire, in the form of a $1.635 billion break fee from AbbVie. That’s equivalent to around 172p per share, which AbbVie must pay Shire by 5pm today, 21 October.

Shareholder payout?

There’s no word yet from Shire on how it expects to spend this windfall.

I’d expect some of it to be used to mop up the vast legal and banking expenses the firm is likely to have incurred while negotiating with AbbVie, but it’s possible that the remainder may be returned to shareholders in the form of a buyback or special dividend.

Is Shire a buy?

It’s been a rollercoaster year for Shire shareholders, but it’s worth noting that the firm’s shares are, as I write, still 35% higher than they were at the start of 2014. That’s not a bad result, against a wider market that’s slumped nearly 7%.

Existing shareholders have the same choice they’ve always had — stay on board for the ride or lock in a healthy capital gain. However, for the first time since July, in my view, buying shares in Shire is now a realistic option for new investors.

Shire now trades on a 2014 forecast P/E of 19, and a 2015 forecast P/E of 17.4.

The firm’s prospective dividend yield remains negligible, at around 0.5%, but it’s worth noting that Shire’s valuation doesn’t look that pricey when compared to those of GlaxoSmithKline and AstraZeneca, neither of which are expected to deliver such strong earnings growth next year:

Shire has other advantages, too. Net gearing of just 15% is lower than AstraZeneca, and massively less than the debt-fuelled behemoth which is GlaxoSmithKline.

Shire’s strong balance sheet means that future growth should translate directly into earnings growth. There’s also the outside possibility that the firm could once again become a takeover target, at some point in the next few years.

I believe Shire is now an interesting buying opportunity for growth investors, and is well worth a closer look at today’s price.

The post Is Shire PLC A Buy After AbbVie Inc Withdraws Takeover Offer? appeared first on The Motley Fool UK.

https://youtu.be/9FT7joTzQc0

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Likewise, when I heard that AbbVie were bidding for Shire, my first reaction was: who’s AbbVie? The name actually comes from the demerger of Abbott Laboratories into Abbott and AbbVie. AbbVie is a jeu de mots upon the fact that this the life sciences part of Abbott.

Complementary drug portfolios

So why is AbbVie buying Shire? Well, the most obvious reason is the tax implications: by being taxed in Britain rather than the States, the joint company’s tax bill would be slashed.

But dig a little deeper and you will find that these companies have strongly complementary portfolios and research bases. Both companies have expertise in biopharmaceuticals: these are biological treatments, ranging from antibodies to stem cells, which very much represent the future of the pharma industry.

Analysing Shire reveals a business that is really a cluster of smaller companies which it has acquired over the past two decades. Each of these smaller companies has expertise in a particular rare disease.

In the past you would never have thought that treatments for rare diseases would be economically viable. Shire confounds that view by bringing together a portfolio of rare disease treatments with pooled research resources.

But AbbVie faces a looming patent cliff

AbbVie is also a biopharmaceutical company, but its expertise is more mainstream, focusing on immunology, kidney disease, liver disease, neuroscience and cancer. But it has a clear weak point: most of its revenues are generated by the arthritis treatment Humira, which is the world’s bestselling drug. Once Humira’s US patent protection expires in 2016, profitability, and I suspect AbbVie’s share price, will tumble.

Checking the fundamentals tells me that, although I will watch this takeover with interest, I won’t be interested in investing. The share prices of both companies have been rocketing. Shire is now on a 2014 P/E ratio of 27, falling to 23 in 2015. AbbVie is on a P/E ratio of 21. These numbers look pricey, reflecting the rapid growth that both these companies have experienced.

This makes these companies considerably more expensive than GlaxoSmithKline (P/E ratio of 14) and AstraZeneca (P/E ratio of 16), and I would prefer these pharma stalwarts as investments, particularly as both GSK and AZN are past their respective patent cliffs. Plus they have a clear pathway to future growth. We have yet to see what shape the newly merged company’s strategy will take.

Indeed if, as looks likely, this takeover takes place, I just wonder whether this might be the cue for the merged company’s share price to take a downward path. If I were a shareholder, I would consider taking profits once the takeover is completed.

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The successful bid represents a premium of 53% against the £34.67 price of Shire shares on 2 May (the last business day prior to AbbVie’s initial proposal).

For each share they held in Shire, investors will receive a cash consideration of £24.44 as well as 0.8960 new AbbVie shares, equating to a value of £52.48 per Shire share based on AbbVie’s closing share price of $53.52 on 17 July, or £53.19 per Shire share based on AbbVie’s 30-day volume-weighted average price of $54.83 to 17 July 2014.

Management at AbbVie claimed that the joining of the two companies “will create a well-positioned and focused specialty biopharmaceutical company, with sustainable leadership positions within areas of unmet need, including immunology, rare diseases, neuroscience, metabolic diseases and liver disease (HCV) and multiple emerging oncology programs”.

Shire shareholders who may not be too familiar with AbbVie’s practices may be reassured by the latter’s commitment to growing a strong dividend, following Shire’s long track record of delivering shareholder value. Additionally, Chairman of the Board and Chief Executive Officer of AbbVie Richard A. Gonzalez commented:

“The combination of AbbVie and Shire is attractive for shareholders of both companies, bringing the potential for strengthened sustainability of top-tier EPS growth, attractive free cash flow and enhanced cash returns to shareholders. The combination would provide us with enhanced access to cash that we can use to expand our portfolio and fund M&A to supplement organic growth.”

Shire’s chairman, Susan Kilsby, said:

“We believe that this offer reflects the substantial value that we have already created for Shire’s shareholders and the strength of our future prospects. We believe that the combined group represents an exciting fit of two complementary businesses that will create a new market leader in specialty pharmaceuticals with a portfolio of fast growing products, a promising pipeline and enhanced growth prospects.”

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