An unceasingly rising stock market may not be a source of complaint for investors, but for those seeking consistent passive income, prolonged market upswings can prove quite frustrating.
Currently, the typical return on stocks that pay dividends within the prominent S&P 500 index stands at a less appealing 1.2%. Despite the overall market appearing overpriced (values higher than their inherent worth), the stocks of Novo Nordisk (NVO) and UnitedHealth Group (UNH) are significantly undervalued, as they sit more than half off their all-time peaks.
I’ve noticed some stocks boast returns that surpass the market median by a factor of two, and they’ve also demonstrated a consistent pattern of swiftly escalating dividends in the past. Let me share some insights on why these stocks have experienced a dip, and how they can potentially aid regular investors in expanding their passive income sources.
1. Novo Nordisk
Last year, the stocks of Novo Nordisk reached their highest point due to heightened excitement over anti-obesity medications. However, subsequent entry of compounding pharmacies like Hims & Hers Health, which were permitted to sell their own semaglutide versions, impacted sales somewhat, leading to a decrease in the stock price. Currently, these pharmaceutical giants, once renowned for diabetes treatments, have seen a 56% decline from their peak value.
As a Danish firm, Novo Nordisk issues financial reports in Danish Kroner. This can sometimes make the growth of their dividends appear unpredictable due to exchange rate fluctuations. Unlike American companies that provide equal quarterly dividends, Novo Nordisk offers a substantial annual ordinary dividend payment that has increased by 129% over the past five years. Additionally, they distribute a smaller interim dividend payment annually, which has grown by 105% during the same period.
It is likely that Novo Nordisk will persistently increase its dividend distributions over the coming years. In the event that the payout does not grow, shareholders purchasing at current prices would still receive a return of around 2.5%. This is significantly higher than the typical yield provided by dividend stocks within the S&P 500 index today.
As an onlooker, I’m noting the impressive growth in sales for Novo Nordisk’s flagship drug, semaglutide. Marketed as Ozempic for diabetes management and Wegovy for weight loss, this glucagon-like peptide-1 receptor agonist (GLP-1) has shown a remarkable 50.3% increase in sales compared to the same quarter last year. Interestingly, Eli Lilly’s competing treatment, tirzepatide, also saw a significant surge, with sales jumping an impressive 165% during the same period.
Tirzepatide is becoming increasingly popular due to its efficiency in swiftly decreasing body weight. However, the shares of Novo Nordisk dropped significantly in March as CagriSema, an experimental therapy that investors anticipated would rival tirzepatide, showed unimpressive outcomes in a major clinical trial.
Although semaglutide might not be the strongest option for weight loss, it’s generally well-tolerated by users. In the realm of weight management treatments, a low incidence of side effects can significantly enhance its appeal. Despite facing tough competition from compounding pharmacies and Eli Lilly, Novo Nordisk has managed to more than double its earnings per share over the past three years.
With the official resolution of the semaglutide shortage, the Food and Drug Administration has mainly ceased authorizing compounding pharmacies to produce their own variations. This decision is expected to provide a beneficial boost to Novo Nordisk’s sales in the future.
I’m thrilled about the current market value of Novo Nordisk, trading at around 16 times projected future earnings. For a company growing its earnings in the low single digits annually, this seems just right. But when you consider the rapid growth rate of their semaglutide product, it becomes an absolute steal! Buying shares now could mean substantial dividend returns to help fund your retirement dreams.
2. UnitedHealth Group
While it may seem counterintuitive when you’re shelling out their premiums, the health insurance sector generally functions with narrow profit margins. Typically, healthcare costs increase at a consistent and foreseeable pace, but this hasn’t been the trend for UnitedHealth Group lately. The company’s stock has plummeted approximately 55% from its peak last year due to an underestimation of how swiftly healthcare costs have escalated.
After reducing their earnings forecast in April, the CEO of UnitedHealth Group stepped down in May. Additionally, the company halted its updated outlook just weeks after making the initial announcement.
In their current market value, UnitedHealth Group stocks provide a 3% return as dividends. Despite the increased difficulty in handling healthcare benefits due to the COVID-19 pandemic, UnitedHealth has remarkably boosted its dividend payout by an impressive 77% over the last five years. This upward trend fills me with optimism.
2025 might be a year that shareholders would prefer to overlook, but there’s no indication that dwindling profits will persist into 2026 and beyond for UnitedHealth. As a key intermediary in healthcare, UnitedHealth typically passes on escalating medical costs to its clients by increasing premiums. The Optum Health division, which accounts for about 10% of the country’s physicians, is under UnitedHealth’s management. Given its status as the largest employer of doctors in America, it has more tools at its disposal to tackle rising expenses compared to its competitors.
It’s uncertain if management will provide updated profit expectations that the market will find satisfactory when they release their second-quarter earnings on July 29. However, should it take them a few quarters to regain their footing, the dividends you receive in the interim remain yours. Investing additional shares now and holding onto them for the long term appears to be a shrewd decision.
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2025-07-22 13:52