Why Avista, Merck, and Skyworks Solutions Are Must-Hold Dividend Champions in a Shifting Yield Landscape

In an era where central banks have kept interest rates near historic lows for years, income-focused investors are increasingly turning to dividend champions—companies with decades of uninterrupted dividend growth and resilient business models. Avista (AVA), Merck (MRK), and Skyworks Solutions (SWKS) stand out as prime examples of this category, offering a unique combination of sustainable income generation and long-term capital appreciation. Let's dissect why these three stocks deserve a permanent place in a diversified portfolio, even as the yield landscape continues to evolve.

Avista: The Utility Sector's Steady Hand

Avista, a regulated electric and natural gas utility operating primarily in the Pacific Northwest, has long been a poster child for dividend stability. From 2023 to mid-2025, the company has increased its quarterly dividend at an average annualized rate of 4%, with the most recent hike in February 2025 raising the payout to $0.49 per share. This consistency is no accident: utilities like Avista benefit from predictable cash flows tied to essential services, insulated from the volatility of discretionary spending.

The company's payout ratio has remained within sustainable bounds, averaging 84% in 2024 but dropping to 50% in Q1 2025, reflecting improved earnings coverage. This flexibility is critical in a low-rate environment, where utilities often trade at premium valuations due to their perceived safety. Avista's pivot toward renewable energy and grid modernization further strengthens its long-term resilience, aligning with regulatory trends and reducing exposure to fossil fuel volatility.

For income investors, Avista's 3.9% yield (as of August 2025) offers a compelling alternative to bonds, particularly in a world where 10-year Treasury yields hover near 3.5%. While its growth trajectory is modest compared to tech or pharma peers, its reliability and defensive characteristics make it a cornerstone of a balanced dividend portfolio.

Merck: Pharma's Enduring Powerhouse

Merck's dividend history is a masterclass in balancing innovation with shareholder returns. The company has raised its dividend for over 30 consecutive years, with the most recent increase in 2025 pushing the quarterly payout to $0.81 per share. Its current yield of 3.81% is bolstered by a payout ratio of 46.4%, significantly lower than the healthcare sector average of 37.9%. This cushion ensures Merck can sustain its dividend even if earnings dip due to patent expirations or competitive pressures.

Merck's business model is a testament to resilience. Its diversified portfolio spans oncology (KEYTRUDA), vaccines, HIV treatments, and animal health, with a robust R&D pipeline that includes 15+ Phase 3 trials. The company's ability to offset near-term headwinds—such as the expiration of Keytruda's U.S. patent in 2028—is evident in its recent successes in HIV prevention (e.g., Isla) and cardiovascular therapies. This innovation-driven approach ensures Merck remains a cash-flow generator, even as the pharma landscape shifts.

Moreover, Merck's capital allocation strategy is disciplined. It allocates roughly 40% of free cash flow to dividends and buybacks while reinvesting in R&D and strategic acquisitions. With a forward dividend yield projected to rise to 4.3% over the next three years, Merck offers both income and growth potential—a rare combination in today's market.

Skyworks Solutions: High-Yield Tech with a Caveat

Skyworks Solutions, a semiconductor company specializing in analog and RF components, is an outlier in the dividend champion category. Its 3.94% yield (as of August 2025) is unusually high for a tech stock, but this comes with a caveat: a payout ratio of 110.8%, meaning the company pays out more in dividends than it earns. However, this doesn't necessarily spell doom.

Skyworks has offset its high payout ratio with strong cash flow generation, driven by its critical role in 5G infrastructure and automotive electronics. The company has raised its dividend for 12 consecutive years, a feat achieved despite a 10% annual decline in EPS over the past five years. Recent earnings beats and improved revenue guidance suggest a potential turnaround, with analysts projecting a 41.3% EPS increase in the next 12 months. If realized, this would slash the payout ratio to 85%, restoring confidence in dividend sustainability.

For aggressive income investors, Skyworks offers a high-risk, high-reward proposition. Its business model is less defensive than Avista or Merck, but its exposure to secular growth trends (e.g., AI, IoT) could justify the risk. The key is to balance Skyworks' volatility with the stability of utilities and pharma stocks.

The Case for Diversification in a Low-Yield World

The common thread among Avista, Merck, and Skyworks is their ability to adapt to macroeconomic shifts while maintaining dividend growth. Avista's regulated utility model provides downside protection, Merck's diversified pharma portfolio ensures long-term cash flow, and Skyworks' tech-driven innovation offers upside potential. Together, they form a diversified dividend portfolio that balances income, growth, and resilience.

However, investors must remain vigilant. Skyworks' high payout ratio and Merck's patent cliffs require close monitoring, while Avista's debt load could become a concern if interest rates rise sharply. The solution? A strategic allocation that leverages each company's strengths while hedging against their weaknesses.

Final Verdict

In a low-rate environment where traditional income assets like bonds offer meager returns, dividend champions like Avista, Merck, and Skyworks Solutions provide a compelling alternative. Avista's stability, Merck's innovation, and Skyworks' growth potential collectively address the dual goals of income generation and capital preservation. While no investment is without risk, the combination of these three stocks offers a roadmap for building a resilient, high-yield portfolio in an uncertain world.

For those seeking sustainable income, the message is clear: these dividend champions are not just must-hold stocks—they're essential building blocks for a future-proof portfolio.