Downturns are a great time to load up on high-quality dividend stocks. Falling share prices pump up dividend yields, and that means you’ll get more bang for your buck in the long run, assuming that the stocks you buy eventually return to growth.
Not all companies will live up to that assumption, though, which is why it’s crucial to understand why their shares are damaged in the first place. Let’s take a look at a pair of stocks that have enough vitality to recover from their recent mishaps.
Viatris (VTRS -3.30%) manufactures a smorgasbord of common generic drugs and it also produces reputable brands like EpiPens, Viagra, and Lipitor. Overall through the numerous products, the company generated trailing-12-month revenue in excess of $17.6 billion. The company is thinly profitable, but its shares have fallen by more than 20% in the last year. Market turbulence aside, weak revenue growth is doubtlessly part of the reason for the damage; its net sales in Q1 were 1% less than a year ago as a result of worse-than-expected uptake of its generic drugs.
Nonetheless, over the next couple of years, Viatris plans to launch as many as seven new generic medicines, including a few with high sales potential, like the attention deficit hyperactivity disorder (ADHD) drug Vyvanse. It’s also on track to realize over $1 billion in cost synergies left over from its recent separation from Pfizer before the end of 2023. So, when management says that the company’s free cash flow (FCF) will be enough to support hiking its dividend, there’s more than one driver in place to suggest they’re right.
Speaking of which, its forward dividend yield is currently above 3.9%, which is quite high. And its most recent dividend hike was for more than 9%, which is on the rapid side. Though there’s no guarantee that Viatris will ever beat the market with such growth — and because generic drugs aren’t likely to have an explosion of demand anytime soon (it’s safer to bet they won’t) — it’s still an appealing stock to own for investors seeking dividend income at a relative bargain to prices last year.
2. AFC Gamma
Advanced Flower Capital Gamma, or AFC Gamma (AFCG -0.22%) as it prefers to be known, is a company that issues collateralized loans to marijuana businesses that need funding. With $483 million in loans outstanding and an estimated 18% yield on its existing roster of liabilities, it’ll be realizing millions in interest revenue for years even if it stops issuing new loans today, which it won’t. And if its debtors fail to pay up, the company can seize the real estate held as collateral, so shareholders won’t be on the hook for the cost of the default.
Unlike Viatris, AFC Gamma hasn’t experienced any setbacks with its revenue growth recently, and its trailing-12-month sales rose by more than 33.9% to reach just over $51 million in the first quarter. The stock’s decline of around 25% over the last year is likely caused by a general negative sentiment surrounding cannabis stocks rather than any specific problem with the company’s future prospects. At the moment, its forward dividend yield of more than 12.2% is positively stratospheric, and its rise of more than 44.7% in the last 12 months is equally impressive.
What’s more, this stock is priced at a bargain when considering its price-to-book (PB) ratio of approximately 1. Such a low PB multiple means that investors aren’t paying anything extra for their cut of the company’s value. But don’t expect AFC Gamma’s shares to be priced attractively forever. As the market for cannabis grows over the coming years, unless U.S. federal cannabis legalization occurs, there will be a growing number of businesses seeking its services.
And as long as it can keep getting interest payments and raising new capital itself via debt or stock issuance, it’ll keep having the fuel it needs to lend out cash and ensure future returns.
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