Recessions are difficult to predict. Even professional economists sometimes get it wrong. But they will happen occasionally and sometimes take the stock market down. That’s why it’s useful for investors to buy shares of companies that can perform relatively well even during downturns.
Which companies are worth investing in, then? Solid dividend stocks can be great picks. Their ability to maintain or even increase their payouts regardless of economic conditions speaks volumes about the strength of their underlying businesses.
With that in mind, let’s consider two dividend stocks that can help investors get through the toughest recessions: AbbVie (NYSE: ABBV) and Merck (NYSE: MRK).
1. AbbVie
There is a good reason healthcare is considered a defensive industry. Many medical products and services aren’t luxuries. They are essential to people’s health and, sometimes, their lives.
That certainly applies to pharmaceutical drugs, which are AbbVie’s main business. The company boasts a lineup of medicines such as Skyrizi and Rinvoq in immunology, Venclexta and Imbruvica in oncology, Vraylar and Qulipta in neuroscience, and more. AbbVie can no longer rely on Humira — the best-selling drug in the world at its peak — to drive growth. It lost its patent exclusivity in the U.S. last year.
However, the company’s financial results are pretty good, considering. In the second quarter, revenue totaled $14.5 billion, an increase of 4.3% year over year. It is not rare for pharmaceutical companies to go through a couple of years of declining revenue after a significant patent cliff — and it’s not particularly a cause for concern. AbbVie’s management initially predicted that it would get back to top-line growth in 2025. The company is well ahead of schedule, which says a lot about the business. AbbVie prepared in advance for this ordeal and is handling it about as well as we could hope.
Elsewhere, AbbVie’s pipeline features dozens of ongoing clinical trials. It is also bolstering its portfolio through acquisitions. It recently completed the buyout of Cerevel Therapeutics, a clinical-stage biotech focusing on neuroscience, for $8.7 billion. Whether it is through acquisition or internal development, AbbVie has the tools to continue developing important medicines.
Its current main growth drivers, Skyrizi and Rinvoq, will generate more than $27 billion in sales between them by 2027 and continue growing well into the 2030s, according to management. For reference, Skyrizi and Rinvoq’s combined revenue last year was $11.7 billion.
What about AbbVie’s dividend status? The company has raised its payouts for 52 consecutive years, including the time it spent under the wing of Abbott Laboratories, its former parent company. AbbVie’s forward yield currently tops 3.16%, compared to the S&P 500‘s average of 1.32%.
The drugmaker is a top stock to hold through a recession since it will likely continue recording somewhat strong revenue and earnings while sustaining its dividend payouts.
2. Merck
Merck is also a leading drugmaker. The company’s top-selling drug, Keytruda, took over from Humira as the best-selling in the world. This terrific growth driver still has a lot of life in it, having earned dozens of indications for many different types of cancer in various countries. In the second quarter, Merck’s revenue of $16.1 billion was up 7% compared to the year-ago period. Keytruda’s sales of $7.3 billion jumped 16% year over year. True, Keytruda’s patent will expire in 2028.
However, the company seems increasingly ready. Merck is working on a subcutaneous version of Keytruda that will take over some of the medicine’s indications. The research company Evaluate Pharma puts this version of Keytruda as one of the industry’s most promising pipeline programs, potentially generating as much as $8 billion in revenue by 2030. While that won’t replace all — or even most — of what Keytruda currently racks up, Merck will rely on other products.
That includes Winrevair, a medicine that recently earned approval for treating pulmonary arterial hypertension. Merck’s vast pipeline, particularly in oncology, should also deliver many more brand-new medicines moving forward. Though its sales will almost certainly decline once Keytruda’s patent expires, the healthcare giant has the tools to recover from that and thrive long after. Further, Merck also has a strong dividend track record.
It has increased its payouts by 75% in the past decade and currently offers a forward yield of 2.65%. A recession is unlikely to break Merck’s business or its dividend streak.
Should you invest $1,000 in AbbVie right now?
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories and Merck. The Motley Fool has a disclosure policy.
2 Dividend Stocks You Can Safely Hold Through a Recession was originally published by The Motley Fool
