Two S&P 500 shares offering potential dividend increases of around 30%, as suggested by two financial experts on Wall Street.
Discovering stocks capable of doubling or tripling your investment in a short timeframe isn't a herculean task. Almost daily, Wall Street analysts issue price projections implying a small, unestablished company could double or triple your money. However, the word 'could' often works overtime for such high-risk investments to make sense for most investors.
If you desire to avoid risky markets but aspire for your investments to surpass the benchmark S&P 500 (^GSPC 0.99%) index, it's time to focus on well-entrenched companies offering dividend payments.
Dividend-paying stocks may not witness rapid leaps, but over time, they tend to outperform. From 1973 through 2023, the typical dividend-dispensing stock in the S&P 500 index boasted a 9.17% annual return. This surpassed the return you'd receive from the average non-dividend-dispensing stock within the same index, according to Hartford Funds and Ned Davis Research.
Eli Lilly (LLY 1.41%) and Microsoft (MSFT -0.46%) are two lucrative dividend stocks in the S&P 500 index. Wall Street analysts tracking them believe they can increase by 30% or more in the upcoming year.
1. Eli Lilly
From Oct. 11 through Nov. 6, Eli Lilly shares fell 16.7%, chiefly due to third-quarter results that underperformed Wall Street estimates. Also, management lowered the midpoint of its 2024 earning guidance range to $12.30 per share. This equates to 19.9% less than they anticipated a few months prior.
Wall Street isn't fond of unpredictability, but analysts closely monitoring Lilly weren't particularly concerned about the adjustment. Bank of America reduced its price target on the stock by $50 to $1,100 per share, implying a gain of approximately 42% from current prices.
Wall Street generally remains optimistic about Lilly and the sales of tirzepatide, a drug the FDA authorized as Mounjaro for diabetes in 2022, and as Zepbound for weight management in 2023. Third-quarter sales for the combined brands surpassed $4.4 billion, representing a 210% increase compared to the previous year. However, this mega-blockbuster's sales growth slowed down slightly, with third-quarter sales of tirzepatide only increasing less than 1% compared to the previous quarter.
Shares of Eli Lilly feature a minuscule 0.6% dividend yield at current prices, but increase is imminent. Last December, the company boosted its payout by an astounding 15% and additional increases could be on the horizon. Despite decelerating sales growth, Lilly anticipates adjusted earnings to reach $13.27 per share at the midpoint of management's guidance range. This surpasses the annual dividend commitment of $5.20 per share set at present.
Weight management drug sales are expected to eclipse $200 billion by 2031. Although Eli Lilly appears set to maintain a leading position in this market, investors may wish to wait another quarter or two to ensure the recent deceleration isn't an indication of more challenges to come. Tirzepatide treatment costs over $1,000 per month. The recent slowdown could hint at weight loss drug sales reaching a saturation point.
2. Microsoft
Microsoft shares are currently trading approximately 10% below their peak achieved in July. Wall Street analysts believe its best days lie ahead. In response to fiscal first-quarter results ending Sept. 30, Morgan Stanley raised its price target on the stock to $548 and maintained an overweight rating. The elevated target implies a 30% gain from current prices.
Strong network effects for Microsoft's business productivity software and cloud infrastructure businesses have fueled Wall Street's optimism. Microsoft Cloud grew fiscal first-quarter sales by 22% year over year, reaching an impressive $38.9 billion. Moreover, its relatively young AI business is projected to surpass $10 billion in annual sales in the current quarter.
Like Eli Lilly, Microsoft offers a low-yield dividend with swiftly rising payouts. In September, the company boosted its quarterly payment by 10% and authorized an additional $60 billion in share repurchases to facilitate further payout increases.
Microsoft stock boasts a scant 0.8% yield at current prices. If its dividend continues to rise by double-digit percentages, it could still serve as a significant source of passive income during your retirement years. Adding a few shares to your diversified portfolio now could be an astute move.
In the realm of finance, many investors may choose to invest in dividend-paying stocks like Eli Lilly and Microsoft to surpass the benchmark S&P 500 index. Despite having low dividend yields at current prices, both companies have a history of raising their dividends, making them potential sources of passive income during retirement years. For instance, Microsoft increased its dividend by 10% in September, and further payout increases are anticipated.
