Tobacco Giant Otria (NYSE:MO) Offering a 7% dividend yield is high, much higher than S&P 500 The index averaged 1.3%. However, as its business has been working hard to grow in recent years, its dividend growth is also small.
Meanwhile, the pharmaceutical company Yililai (NYSE: LLY) Offering a yield below 1% is much lower, but its dividend growth rate is impressive.
If your priority is to collect large dividend income, which stock is the better option?
Altria has been impressive for 55 consecutive years to raise its dividend. Eli Lilly's current winning streak can only be traced back to 2015. But while Altria's track record is more impressive, that doesn't necessarily make it a better dividend growth stock.
Before the Great Depression of 2008-09, Eli Lilly's dividend growth spanned more than 40 years in a row. While it will pause its pace for years as it resumes dividends, its increase is much higher than that of Altria.
Altria's dividend has increased by more than 21% over the past five years, while Eli Lilly shareholders' dividend has doubled.
One important reason Eli Lilly’s dividend yield may not be exciting is that the stock performs so well. In five years, healthcare stocks have climbed 476%, while Altria has risen about 52% (the S&P 500 has a return of more than 116%). Soaring stocks will fall as collecting dividends becomes even more expensive even with massive increases.
A large part of Eli Lilly’s stock buying is due to the huge growth it is achieving and the growth opportunities it has in the GLP-1 weight loss market. Meanwhile, Altria faces an uncertain future as tobacco use declines and it is looking for a way to grow its business.
If you invest in stocks to collect dividends over the next 12 months, you may be tempted to go with Altria. But if you are a long-term investor, go with tobacco stocks and if profits are lowered due to slowing demand, the company may reduce its chances of dividends.
Eli Lilly's stock has exploded in the past five years, but has increased valuations and may not produce these types of returns in the future. If its returns are moderate and the company continues to make generous markups, its yields may start to rise, which is why investors should not focus too much on current spending.
