3 pharmaceutical stocks with particularly juicy dividends
Big pharma usually makes a lot of money. And many of them return part of their profits to investors in the form of dividends.
We asked three Motley Fool contributors to pick the pharma stocks they think have particularly juicy dividends. Here’s why they chose AbbVie (NYSE: ABBV), Gilead Sciences (NASDAQ: GILD), and Pfizer (NYSE: PFE).
A Well-Functioning Dividend Aristocrat
Keith Speights (AbbVie): There’s so much to love about AbbVie’s Dividend, it’s hard to know where to start. But I’ll start with its attractive yield of 4.2%. What’s even better, however, is that AbbVie is a dividend aristocrat — an elite group of S&P500 members who have increased their patronage dividends for at least 25 consecutive years.
Unlike some dividend stocks, AbbVie has also seen strong growth lately. Its shares soared 26% last year. With dividends included, the drugmaker’s total return easily beat the performance of the S&P 500.
There are, however, some concerns for AbbVie. The US Food and Drug Administration (FDA) recently placed additional warnings on the company’s JAK inhibitor Rinvoq. This could limit the sales of the drug to some extent. In addition, AbbVie’s top-selling drug, Humira, will face biosimilar rivals in the United States from 2023. Sales are expected to drop significantly.
However, AbbVie’s dividend should not be in jeopardy at all. The company could also continue to generate solid growth in the second half of this decade after the initial impact of Humira’s loss of exclusivity. AbbVie has several other growth drivers, including autoimmune disease drug Skyrizi and blood cancer drug Venclexta.
This biotech has increased its dividend by 51% in five years
David Jagelsky (Gilead Sciences): Investing in a high yielding dividend stock can be a great way to get the most out of your money. But to make sure inflation doesn’t eat away at that cash flow over time, you’ll also want to invest in a company that’s increasing its dividend payouts. With Gilead Sciences, investors get the best of both worlds: a high return of around 4% that has also increased over the years.
Five years ago, Gilead paid its investors a quarterly dividend of $0.47. Today, those payments are at $0.71, growing 51% over that time and showing a compound annual growth rate of 8.6%. And that already juicy dividend may become even more appetizing as the company’s payout ratio is below 50%.
In Gilead’s latest quarterly update, sales rose 13% year over year to $7.4 billion. The company also reported net income of $2.6 billion, which equates to earnings per share (diluted) of $2.05. And in the nine months prior to that date, earnings per share (EPS) exceeded $4.63. That’s easily enough to cover the current dividend, which on an annual basis would total $2.84. And that also leaves room for generous raises.
Now might be the perfect time to buy Gilead stock. The company usually releases its fourth quarter results in early February. Gilead could also announce another dividend hike. Since 2015, when the company started paying dividends, Gilead has consistently increased its payouts each following year (and normally in February).
With financials strong and the company likely to continue to get a boost from its COVID-19 treatment, Veklury, it’s likely that dividend could get even juicier than it already is today.
A cash cow with a stable dividend
Prosper Junior Bakiny (Pfizer): When it comes to dividend stocks, high yields are great, but the ability to sustain dividend increases is even better. This is what the pharmaceutical giant Pfizer offers. The company’s current yield of 2.75% is well above the S&P 500 average of 1.27%. But equally important is Pfizer’s very conservative cash payout ratio of 29.64%. For context, a payout ratio below the 60% range is generally considered good.
This implies that Pfizer has considerable leeway to maintain dividend increases largely thanks to the cash it has generated over the past year. Pfizer’s free cash flow jumped 126.1% to $29.2 billion in the last twelve months. We can attribute this primarily to Pfizer’s COVID-19 vaccine, Comirnaty. This vaccine became a blockbuster – and more – in its first year on the market.
Pfizer said it would generate $36 billion from Comirnaty in fiscal year 2021. Given recent developments surrounding the pandemic, 2022 should be another great year for the vaccine. Management believes Comirnaty’s sales could reach $29 billion this year. Pfizer’s coronavirus business alone, which includes Comirnaty and Paxlovid, a COVID-19 therapy that recently gained approval, will generate more sales than dozens of large companies this year.
But Pfizer has other tools at its disposal. The company’s anticoagulant Eliquis, cancer drug Xtandi, as well as its biosimilar activity, contribute significantly to its overall performance. Even immunosuppressant Xeljanz could return to growth this year despite the regulatory headwinds it encountered last year.
Finally, Pfizer’s pipeline includes 29 ongoing Phase 3 clinical trials. Expect new products and label expansions to bolster an already strong lineup.
And all this at a reasonable price, too. Pfizer trades at just 9.1 times forward earnings, compared to an average price-earnings ratio of 13.3 for the pharmaceutical industry.
In short, Pfizer offers a bit of everything most investors are looking for: high growth, reasonable value, and stable income in the form of dividends. Too juicy to pass up, indeed.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.