The market rally in the first half of 2023 saw the S&P 500 up over 20% by July. But the fall season checked the bullish momentum and brought the index’s year-to-date return down closer to the 15% mark.
Volatility is likely to linger over the near future, so investors are looking for stocks to park capital coming into the new year. That includes tried-and-true brands like Coca-Cola (NYSE: KO), trusted by Warren Buffett and everyday investors alike.
Other top contenders are big pharmaceutical companies with proven income streams and a healthy pipeline of future products. Both Johnson & Johnson (NYSE: JNJ) and Eli Lilly (NYSE: LLY) fit that category.
These three companies have been staples in income-seeking portfolios for years, and not just because of their stability and growth prospects. For decades, they have paid dividends with annual yields ranging from just below 1% to around 3.25%.
But are these magnificent dividend stocks worth buying right now?
Is Eli Lilly a Good Long-term Stock?
Eli Lilly has rewarded long-term investors with a 5-year return topping 438%. That growth hasn’t stopped in 2023, with LLY up nearly 68% year-to-date.
In Eli LIlly’s 3rd quarter of 2023 earnings release, revenues were up 37% year-over-year to $9.5 billion.
It’s somewhat comforting that $1.44 billion of that revenue came from products that have been launched since 2022. Mounjaro is chief among these new products, a drug that was designed to treat Type 2 diabetes but just received approval as a weight-loss treatment as well.
The company is generating billions from products released prior to 2022, and there are more in the pipeline, including prospective treatments for everything from Alzheimer’s disease to thyroid cancer.
Forecast for Eli Lilly Stock
Because of the company’s revenue growth and pipeline prospects, 22 out of 30 analysts rate LLY as a buy. However, the median forecast of a 6.3% gain over the next year, which would result in a share price of $650, may seem a little muted. The highest forecast has LLY gaining 18% to $722 over the coming year.
There are analysts who aren’t quite as buoyant on the stock, with 5 Hold ratings and 3 recommendations to Sell.
The lowest forecast has the stock underperforming the market, and dropping nearly 30% to $430 over the next year.
Is Eli Lilly Stock Overvalued?
The concerns around LLY are more than likely valuation concerns because the current P/E ratio tops 110x.
Given the run-up in LLY share price, it’s natural for investors to worry that it won’t go much higher.
Eli Lilly also logged a net loss of $57.4 million in the 3rd quarter, a stark contrast to the company’s $1.45 billion in net income last year. The loss was largely due to Eli Lilly’s aggressive acquisition strategy.
So far this year, the company announced the acquisition of Dice Therapeutics for around $2.4 billion, a nearly $2 billion deal to buy Versanis Bio, and the acquisition of Emergence for an undisclosed amount.
LLY pays a quarterly dividend of $1.13 per share, for an annual dividend yield of 0.74%. Given the company’s growth prospects and its dividend, LLY is still likely to reward its investors.
Where Will Coca-Cola Stock Be in 5 Years?
Coca-Cola stock never veers too far off the radar as a result of its rock-solid stable of brands and well-established competitive moat. But despite its competitive advantages, KO share price is down 9.5% in 2023, largely due to sustainable growth concerns.
In its 3rd quarter of 2023 earnings, Coke reported net revenue that was up 8% over last year. The increase in sales led the company to raise its guidance for the end of the year. The $12 billion in revenue beat estimates by 4.28%.
Earnings per share also outperformed expectations with the $0.71 diluted EPS was 6.5% above estimates.
Prediction for Coke Stock
Of the 25 analysts who have weighed in on KO, there isn’t a single Sell rating. In fact, the lowest forecast still sees Coca-Cola share price rising by 3.6% to $59 over the next year.
The median forecast has KO rising 14.2% to $65 over the next 12 months. Five analysts estimate that Coke stock will outperform the market over the next year, with the most bullish prediction projecting a 30% increase to $74 per share.
Is Coca-Cola Stock Undervalued?
Coca Cola currently has a P/E value of 23x, which is lower than the beverage industry average of around 29x. It’s a further sign that KO is undervalued at this price point.
And then there is the dividend, which has been a selling point for the stock for decades. The company’s current annual yield of 3.23% means the quarterly dividend of $0.46 per share goes back to shareholders.
Given its strong leadership, moat, revenue growth, and dividend, Coca-Cola stock is an attractive Buy at this price point.
Is Johnson & Johnson a Good Long-term Stock?
Johnson & Johnson is another pharma giant, but unlike Eli Lilly stock, JNJ has been falling all year. The stock is down 17% year-to-date, which seems at odds with the company’s consistent sales growth.
In the 3rd quarter earnings report, Johnson & Johnson reported $21.4 billion in sales, a 6.8% increase from last year. That outperformed analysts’ estimates for the quarter by 1.43%. Earnings per share of $1.69 represented a 4.63% year-over-year increase, which was 5.5% better than expected.
While the company’s drugs and pipeline may not be as enticing as Eli Lilly’s, Johnson and Johnson also operates in the medical technologies and consumer health products segments. Growth across the divisions helped the company log net earnings of $4.3 billion, roughly the same amount as last year.
Is Johnson and Johnson Stock Going to Rise?
Analysts have been reluctant to go all in on JNJ. Of 24 analysts who have issued forecasts on the stock, 14 assess it as a Hold. The median estimate forecasts Johnson & Johnson share price will increase by 16.3% to $172 per share over the next year.
There is one Sell rating on JNJ, and even that prediction has the stock increasing by 4.9% to $155 per share. On the flip side, the most optimistic forecast sees Johnson & Johnson shares reaching $195 per share, an almost 32% increase from where it currently trades.
Is Johnson & Johnson Stock a Buy?
While analysts largely agree that JNJ will increase, the main concern is the company’s opportunity for revenue growth from here. Still, with a P/E ratio of just 10.9x, well below many of its competitors, the stock appears undervalued.
There is also the company’s dividend that has long been a draw to the stock. With an annual dividend yield of 3.22% and a quarterly dividend payout of $1.19 per share, there is a good reason JNJ is a part of so many portfolios.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.