If Wall Street’s right, investors will get a lot more than just rising dividend payments from this pair.
Finding stocks that could quickly double or triple your money isn’t hard. Just about every day, a Wall Street analyst issues a price target that suggests a relatively small and unestablished company could double or triple your money. Usually, though, the word “could” is working way too hard for such a risky investment to make sense for most investors.
If you want to avoid the riskiest corners of the stock market but would still like the stocks you buy to outperform the benchmark S&P 500 (^GSPC 0.02%) index, it’s time to set your sights on well-established businesses that offer dividend payments.
Dividend-paying stocks rarely rise dramatically, but over time they tend to outperform. From 1973 through 2023, the average dividend payer in the S&P 500 index delivered a 9.17% annual return. That was more than twice the return you’d receive from the average non-dividend payer in the same index, according to Hartford Funds and Ned Davis Research.
Eli Lilly (LLY -0.86%) and Microsoft (MSFT 0.51%) are two high-flying dividend stocks in the S&P 500 index. Here’s why the Wall Street analysts who follow them think they can rise by 30% or better in the year ahead.
1. Eli Lilly
From Oct. 11 through Nov. 6, shares of Eli Lilly fell 16.7%, largely in response to third-quarter results that missed Wall Street expectations. Management also lowered the midpoint of its 2024 earning guidance range to $12.30 per share. That’s 19.9% less than it told investors to expect a few months earlier.
Wall Street generally hates unpredictability, but analysts who follow Lilly closely weren’t too worried about the adjustment. Bank of America lowered its price target on the stock by $50 to $1,100 per share. That still implies a gain of about 42% from recent prices.
Wall Street is generally still bullish for Lilly and sales of tirzepatide, a drug the FDA approved as Mounjaro for diabetes in 2022, and as Zepbound for weight management in 2023. Third-quarter sales of the combined brands reached $4.4 billion. This was 210% more than it sold a year earlier but this mega-blockbuster’s sales trajectory tapered off. Compared to the previous quarter, third-quarter sales of tirzepatide were less than 1% higher.
Shares of Eli Lilly offer a tiny 0.6% dividend yield at recent prices but it’s rising fast. Last December, the company raised its payout by a whopping 15% and more big raises could be in the cards. Despite tapering sales growth, Lilly expects adjusted earnings to reach $13.27 per share at the midpoint of management’s guidance range. That is heaps more than it needs to meet an annual dividend commitment currently set at just $5.20 per share.
Sales of weight management drugs like tirzepatide are expected to grow past $200 billion by 2031. While it looks like Eli Lilly will retain a leading share of this space, investors might want to wait another quarter or two to be sure the recent deceleration isn’t a signal of worse trouble to come. Tirzepatide treatment costs over $1,000 per month. The recent slowdown could be a sign that weight loss drug sales have already reached a breaking point.
2. Microsoft
Shares of Microsoft have been trading for about 10% below a peak they reached in July. Wall Street analysts think its best days are still ahead. In response to results from its fiscal first quarter that ended Sept. 30, Morgan Stanley raised its price target on the stock to $548 and maintained an overweight rating. The increased target implies a gain of around 30% from recent prices.
Strong network effects for Microsoft’s business productivity software, and cloud infrastructure businesses are the reason Wall Street’s bullish. Microsoft Cloud grew fiscal first-quarter sales by 22% year over year to a whopping $38.9 billion. Plus, its relatively young AI business is on pace to exceed $10 billion in annual sales in the present quarter.
Like Eli Lilly, Microsoft offers a low-yield dividend with a quickly rising payout. In September, the company raised its quarterly payment by 10% and made future raises easier by also authorizing $60 billion in share repurchases.
Microsoft stock offers a paltry 0.8% yield at recent prices. If its dividend keeps rising by double-digit percentages, though, it could still be a significant source of passive income in your retirement years. Adding some shares to a diverse portfolio now could be a smart move.
Bank of America is an advertising partner of Motley Fool Money. Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.