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Want Safety and Growth in 2023? Try These Dividend Stocks.

The Motley Fool logo The Motley Fool 1/25/2023 Adria Cimino

Last year was a tough one for most companies and investors. The three major indexes touched bear territory. And even the strongest of companies saw their share prices slip. Everyone is hoping 2023 will bring better days. History indicates this might happen. Still, to maximize your chances of winning this year and over the long term, it's best to be prepared for any situation.

How should investors do that? By looking for safety and growth. You'll find that in certain dividend stocks. Often, they're thought of as safe, but slow when it comes to growth. That's not always the case, though. Yes, they're safe because they pay you annually for holding the stock -- no matter how the stock or general market performs. But some dividend stocks also can bring you growth over time. Let's consider two to buy in 2023.

1. AbbVie

AbbVie (NYSE: ABBV) makes the world's best-selling drug. The immunology treatment Humira brought in $20 billion in 2021. The bad news is that product is set to face competition as of this month, and that will weigh on sales.

But here's why AbbVie is about to embark on a whole new phase of growth. The company has been working to bring its two newer immunology treatments -- Rinvoq and Skyrizi -- to market in all of Humira's indications plus others. So far, the plan is working. The U.S. Food and Drug Administration has approved the drugs in five and three indications, respectively.

AbbVie expects peak sales of Rinvoq and Skyrizi to beat those of Humira by 2027. The company forecasts more than $21 billion in annual sales. And the two drugs are set to generate more than $17.5 billion in sales as early as 2025. AbbVie also sells dozens of other products in high-growth areas such as aesthetics and neuroscience.

So, the company has what it takes to bring investors growth soon -- and over time. Now let's talk safety. AbbVie pays an annual dividend of $5.92 a share. That represents a dividend yield of 3.96%. This is much higher than the pharmaceutical industry's average yield of 2.15%, according to NYU Stern School of Business data. And AbbVie's rising free cash flow indicates it has what it takes to keep increasing its dividend.

ABBV Free Cash Flow © YCharts ABBV Free Cash Flow

This combination of blockbuster products that patients need and a dividend you can count on make AbbVie a stock to buy -- no matter what the market does this year.

2. Target

Target (NYSE: TGT) is another company that offers a higher dividend than its peers. The retailer pays a dividend of $4.32 a share, which comes out to a yield of 2.62%. The average yield for the industry is less than 2%.

Target and AbbVie both are part of a dividend elite known as the Dividend Kings. These are companies that have increased their dividends for at least the past 50 years. This shows sharing their success with shareholders is important to them. So, they're likely to continue doing so.

Last year, Target stock suffered along with many other retailers. Like peers, Target faced higher costs due to rising inflation -- and higher prices hurt its shoppers' buying power, too. As a result, the company's operating margin suffered. And the share price sank 35% in 2022.

But even in this tough environment, Target still managed to grow. The retailer reported its 22nd consecutive quarter of comparable-sales growth in the most recent quarter. It also gained market share across all of its product categories. And Target's owned brands -- which represent higher margins for the retailer -- grew at 2 times the rate of the whole enterprise.

Today, Target is taking steps to become more efficient. The company expects this plan to save at least $2 billion over the coming three years. At the same time, it continues to invest in store revamps and its fulfillment capabilities, which should prepare the terrain for growth down the road.

The decline in Target's stock last year left it trading at 29 times forward earnings estimates. That's down from more than 40 a year ago. This stock looks like a bargain, because Target offers you the security of passive income and a bright long-term growth picture.


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Adria Cimino has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.


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