Right now, the UK economy is under severe pressure. Inflation remains stubbornly high, which is fuelling the cost-of-living crisis. In such times, I like to generate some extra income with the acquisition of more dividend shares.
Companies that pay dividends tend to be more profitable and stable than growth-focused firms. This gives them room to withstand economic instability. But some have strong growth prospects too.
Furthermore, dividend shares tend to perform better than the broader market during inflationary periods. Goldman Sachs conducted research that found 77% of the S&P 500’s returns during the 1970s (a period of high inflation) resulted from dividends and dividend reinvestment.
AbbVie (NYSE: ABBV) and Coca-Cola (NYSE: KO) are two dividend shares I’m buying more of.
AbbVie
AbbVie is a pharmaceutical giant in the US that specialises in the research and production of innovative drugs.
It has faced some stumbling blocks recently, as its top-selling drug Humira recently lost its patent. This accounted for $21.2bn of sales last year, 37% of its total revenue.
Therefore, with the introduction of lower-cost versions from the competition, it’s no surprise that we saw overall revenue for the second quarter fall by 5% year on year.
However, by 2025 management expects to return to growth with sales of Rinvoq and Skyrizi, two of its fast-growing drugs, to make up for the lost revenue from Humira.
AbbVie’s pipeline is also vast. It has a total of 50 programmes at mid- or late-stage research in high-growth areas such as neuroscience, aesthetics, eyecare, virology and oncology.
So I see ample growth opportunities for AbbVie to take advantage of.
It’s also a dividend king, currently on track to deliver 51 years of consecutive payout rises, originally as part of Abbott Laboratories. Since it was spun out in 2013, it has raised its dividend by an incredible 270%.
With a dividend yield of 4%, I think AbbVie shares are a great way to generate passive income. For perspective, the S&P 500 only has a yield of 1.53%.
Coca-Cola
As the largest beverage company in the world, Coca-Cola pulled in $42.84bn of revenue in 2022. We’d be forgiven for thinking it’s too big to continue generating meaningful growth. However, management is guiding for growth of 8-9% in 2023.
What I like about Coca-Cola is that it has products that consumers love and continue to buy. Its excellent brand recognition is also a positive point.
There are some short-term issues it faces though. Namely, it’s starting to feel the effects of inflation. We can see this as earnings per share (EPS) growth is expected to lag revenue expansion, only growing by 5-6%.
However, I believe that this is just a short-term issue. Once inflation cools down, EPS growth should return to higher levels.
Moreover, Coca-Cola also claims the title of dividend king, raising its dividend for an impressive 61 consecutive years.
It boasts a dividend yield of 3.1%, easily higher than that of the S&P 500 as a whole.
Now what
AbbVie and Coca-Cola are two very stable and profitable companies that continue to have great growth prospects.
It’s important to note that dividends aren’t guaranteed. However, both companies have provided a very reliable dividend historically and I expect them to continue doing so, which is why I will continue to buy their shares.
