We recently compiled a list of the 12 Best Dividend Stocks For Steady Growth. In this article, we are going to take a look at where Eli Lilly and Company (NYSE:LLY) stands against the other dividend stocks.
It’s well understood how crucial dividend growth stocks are for investors. Although dividend stocks have been moving at a slow pace recently, largely due to the AI stock boom, their long-term value remains undeniable. Investors appear to be increasingly drawn to dividend growth strategies, recognizing that the focus should now be on growth rather than just yield. The Dividend Aristocrat Index stands out as a strong investment opportunity, offering an average yield of about 2.4%, trading at roughly 23 times earnings, and projected to achieve an average annual earnings growth of 7% over the coming years.
Also read: 10 Best Dividend Aristocrats According to Wall Street Analysts
During the second quarter, US equity markets saw gains, driven by ongoing excitement around artificial intelligence technology, which led to a notable rise in growth stocks. Analysts believe that dividend-paying equities, supported by strong fundamentals, sustainable growth prospects, and solid balance sheets, are well-positioned to benefit from continued economic growth. The current market environment has somehow blurred the line between tech and dividend stocks, especially as major tech companies have introduced dividend policies this year. Whether these companies can continue to raise their payouts remains to be seen. However, the outlook for dividend growth appears promising. In the first quarter, US companies increased their cash reserves to a record $4.11 trillion, aided by a resilient economy and relatively high interest rates, which has accelerated the dividend growth process. According to S&P Dow Jones Indices, over 175 companies in the S&P 500 announced a dividend increase or initiated a dividend during the first half of 2024.
Another factor boosting the significance of dividend growth stocks is the upcoming Federal Reserve interest rate decision in September. Paul Baiocchi from SS&C ALPS Advisors considers this a prudent strategy, as he expects that the Fed will begin easing rates. The chief ETF strategist made the following comments while speaking at CNBC’s “ETF Edge”:
“Investors are moving back toward dividends out of money markets, out of fixed income, but also importantly toward leveraged companies that might be rewarded by a declining interest rate environment.”
He further said:
“You’re looking for dividends as part of the methodology, but you’re looking at dividends that are durable, dividends that have been growing, that are well supported by fundamentals.”
Various reports have indicated that while dividend growth companies may not deliver immediate rewards, they offer substantial long-term benefits. Nuveen, a financial planning firm based in Illinois, provided an optimistic outlook on dividend growth strategies this year, emphasizing their historical performance. The report suggested that companies focused on dividend growth possess valuable long-term characteristics and are well-positioned for strong relative performance in the year ahead. Over time, companies that consistently increase or initiate dividends have achieved higher annualized returns with lower volatility compared to other equity market segments. Although dividend growth companies may not outperform in every market environment, their robust risk-adjusted returns over extended periods make them an ideal foundation for any equity portfolio. With that, we will take a look at some of the best dividend stocks for steady dividend growth.
Our Methodology:
For this list, we screened for dividend stocks with a 5-year average dividend growth rate of above 10%. From that list, we picked stocks with dividend growth track record of at least 10 years. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A scientist in a lab running tests on a variety of biopharmaceuticals.
Eli Lilly and Company (NYSE:LLY)
5-Year Average Dividend Growth: 15.03%
Consecutive Years of Dividend Growth: 10
Eli Lilly and Company (NYSE:LLY) is an Indiana-based pharmaceutical company that manufactures and develops a wide range of medicines for serious ailments. In the second quarter of 2024, Mounjaro, Zepbound, and Verzenio were key drivers of strong financial results, alongside progress in manufacturing expansion efforts. Equally noteworthy is the global growth of the company’s treatments for cancer, neurological disorders, and autoimmune diseases. In addition, the recent approval of Kisunla to assist those with Alzheimer’s disease marks a significant achievement after decades of effort. The company is outperforming the broader market in 2024, returning nearly 61%.
Baron Funds highlighted reasons for Eli Lilly and Company’s (NYSE:LLY) strong returns this year in its Q2 2024 investor letter:
“Shares of global pharmaceutical company Eli Lilly and Company (NYSE:LLY) increased on continued investor enthusiasm around GLP-1 drugs for diabetes and obesity. We remain shareholders. Lilly’s Mounjaro/Zepbound not only offers superb blood sugar control for diabetics but can drive 20%-plus weight loss and likely improve cardiovascular outcomes in both diabetic and non-diabetic obese patients. Lilly is developing next generation drugs, including retatrutide, which drives approximately 25% weight loss, and orforglipron, a daily pill that produces approximately 15% weight loss. In the U.S. alone, there are 32 million Type 2 diabetics and an additional 105 million obese patients who we estimate would qualify for GLP-1 drugs. Although supply and access are limited near term, we think GLP-1 drugs will become standard of care for both diabetes and obesity and will become a $150 billion-plus category. We see Lilly setting a high efficacy bar and capturing significant long-term market share. We think the adoption of GLP-1s will drive Lilly to triple total revenue by 2030.”
Eli Lilly and Company (NYSE:LLY) reported revenue of $11.3 billion in the second quarter of 2024, up 36% from the same period last year. The revenue also beat analysts’ estimates by $1.34 billion. The company’s gross margins also rose 40% to $9.13 billion in Q2 2024, with the gross margin as a percentage of revenue reaching 80.8%, up by 2.5 percentage points. This improvement was mainly due to a favorable product mix and higher realized prices, though it was slightly offset by increased production costs.
Eli Lilly and Company (NYSE:LLY) is a strong dividend payer, offering regular payouts to shareholders since 1885. In addition, the company has raised its payouts for 10 consecutive years, with its 5-year average annual dividend growth of over 15%. It pays a quarterly dividend of $1.30 per share and has a dividend yield of 0.55%.
According to Insider Monkey’s database of Q2 2024, 100 hedge funds owned stakes in Eli Lilly and Company (NYSE:LLY), down from 109 in the previous quarter. The total value of these stakes is over $16 billion. With nearly 5 million shares, Fisher Asset Management was the company’s leading stakeholder in Q2.
Overall LLY ranks 8th on our list of the best dividend stocks for steady growth. While we acknowledge the potential of LLY as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than LLY but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.