Dogs, Drugs and 208% Dividend Gains

Dogs, Drugs and 208% Dividend Gains

I lifted my mask a bit so that my old office neighbor could recognize me:

“Hey!” he said. “Saw you and the pup the other day in front of Shake Shack. I remember when she used to sprint down the hallway, and now…”

“Yeah,” I sighed. “It’s tough. Chronic arthritis, or something. X-rays, MRIs and a cocktail of drugs. Poor thing is only eight but acting like she’s going on 18. Anyway, we’re trying everything. What’s new with you?”

“I’m actually trying to take a sabbatical. Get out of here for a while.” He paused. “If any place will take me!”

My buddy, a Californian, is going to have a hard time getting into a state like New York. If he’s thinking international, well, that’s going to be extra challenging.

An always-upbeat guy for the seven years I’ve known him, he was visibly confused and down. First time I’d ever seen him like this. And, fair enough, as most people aren’t completely “right” at this point in 2020.

It’s a tough backdrop for him to have to make a life decision. Perhaps these confusing times are why so many popular investing decisions—like chasing tech stocks to the moon in the middle of an unfolding economic depression—are puzzling.

But there’s one easy call for me. If Bianca needs a new medication, daddy is going to get her the meds.

A Best Friend, with a Notable “Burn Rate”

It’s bleeding-heart pet owners like me that power the dividend and stock price of Zoetis (ZTS), a maker of medicines for animals. Pfizer spun off the firm in 2013, and it’s been a “growth rocket” ever since. It’s the type of stock that we always watch and rarely get to buy because it is never cheap!

The firm had raised its dividend by 141% over the past five years. Its ever-rising payout acts as a magnet that pulls its share price higher. In our April edition of Hidden Yields, I pointed out that Zoetis was about as cheap as it ever gets, so we might as well buy it. (We’re up about 14% on that purchase.)

After all, when a dividend doubles in just a few years, its stock really can’t help but go higher:

Why Zoetis is a Great Buy

One positive effect of these lockdowns has been record levels of animal adoption and fostering. (Heck, we “fostered” Bianca’s grandniece six weeks ago. She has not yet left the premises and appears to be here to stay.) The pet-mania mega-trend was already in place, and it’s simply accelerated here in 2020.

Zoetis is the type of “asset-lite company” that we like here in 2020. It’s not relying on rents to be paid, gubernatorial statements or any other external factors. The firm makes money as long as pet owners are spending on their best friends, which is about as unstoppable a trend as I can see.

Plus, the firm is expanding its investment in fast-growing segments such as diagnostics and biodevices. These businesses are growing by double-digits, and should support higher payouts for years to come.

Overall, I’m a fan of dividends powered by drugs. Do we (and now, our pets!) pop too many pills in America? Of course we do. But I’m not your holistic health coach—I’m your income strategist, and we like cash flows that are impossible to disrupt.

Many pharma stocks are in the news today, thanks to the non-stop news flow of vaccine reports. We shouldn’t let this distract us. Vaccines are rarely money makers, whereas pills equate to profits. (Once someone starts taking them, they rarely stop. This applies to humans as well as pets…trust me on the latter.)

Back to Zoetis. Since the firm was spun off in 2013, it has increased its dividend by a total of 208%. This has powered price gains of 324%. There’s no “magnet” quite like a dividend magnet to drive a stock price higher!

But, there’s a drug development company that has been growing its dividend even faster—to the tune of 240%!—over this timeframe:

When 208% Dividend Growth is Slow

And unlike Zoetis, this stock price has “only” popped by 183%. It is actually undervalued with respect to its payout, a dividend that is also quite “2020-proof” and should continue to grow by double-digits in the years ahead.

For many publicly traded companies, the reemergence of lockdowns is a potential death sentence. For this drug maker, it’s a non-event. This company is growing its top line by double-digits annually and doubling its dividend every five years. It’s effectively immune to lockdown concerns.

This is a good time to be a stock picker! Computers are good at filtering the past and not so great at handicapping the future, even during “normal” times. And 2020 has been anything but! Tricky moments like these confuse computers, which means the human element is required to evaluate business models that are poised to keep delivering.

What are these human-picked winners? Well, the drug developer I mentioned above has 100% price upside in the years ahead. Its dividend is rock solid, too, which is why it’s our latest recommendation in Hidden Yields.

In addition to this, I do like 7 more recession-proof dividend stocks. Each of these firms is uniquely positioned to profit while lockdowns come and go. Plus, they’re built to withstand an ongoing recession as well. Click here and I’ll share my full research on these 7 Hidden Yield stocks, including their tickers and my target prices.