2 High-Yield Dividend Stocks That Can Safeguard Your Portfolio

Stock market corrections are part and parcel of the investing process. As such, investors shouldn’t get too worked about this inevitability. The current market, though, is starting to show ominous warning signs about a potential downturn. Valuations across the large cap space appear to be stretched in many instances, with 44 large cap equities trading at over 50 times forward-looking earnings right now — 45 of which are valued at more than 100 times next year’s earnings. Moreover, inflation hit a three-decade high in the U.S. last month. The Fed, in turn, may be forced to raise interest rates soon, which is potentially bad news for stocks, as rock-bottom interest rates have been one of the main drivers behind this record-breaking bull market. 

What should investors do to prepare for a possible market correction in the coming months? Blue chip stocks that offer higher-than-average dividend yields could prove to be a viable safe haven for investors in the event of a marketwide downturn. Keeping with this theme, the healthcare giants AbbVie (NYSE:ABBV) and Gilead Sciences (NASDAQ:GILD) both sport handsome dividend yields, well-rounded product portfolios, and valuations that are downright bargains relative to their large-cap peers. Here’s a brief rundown on the pros and cons of these two defensive-oriented high-yield dividend stocks. 

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AbbVie: A Dividend Aristocrat trading at a deep discount

Illinois-based drugmaker AbbVie is a proven commodity as a passive income generator. The company’s stock currently yields a handsome 4.82% on an annualized basis, it’s a Dividend Aristocrat, and the drugmaker has boosted its dividend by a whopping 250% since becoming an independent entity in 2013. Topping it off, the drugmaker’s shares are presently trading at less than nine times 2021 projected earnings, which is well below the industry average. There are a handful of important risk factors associated with this Dividend Aristocrat, however.

First, AbbVie’s payout ratio stands at 122%, implying that its stellar yield might not be sustainable over the long term. Second, the company is facing biosimilar competition in the U.S. for its top-selling anti-inflammatory medication Humira starting in 2023. AbbVie has prepared for this eventuality by being hyperaggressive on the merger and acquisition scene. Moreover, the company has also successfully developed multiple new growth products, such as the immunology drugs Rinvoq and Skyrizi.

Unfortunately, Rinvoq might be relegated to second-tier status in the wake of a classwide restriction on JAK inhibitors by the Food and Drug Administration (FDA) earlier this year. This safety issue could turn out to be a big deal in regard to AbbVie’s fortunes. Rinvoq, after all, was expected to generate upward of $8 billion in revenue for the company in 2025. Even though AbbVie still has big plans for Rinvoq from a label expansion standpoint, it’s not…