Most of the time, most investors look to pharmaceutical stocks for growth, primarily on the heels of things like breakthrough drugs or the expiration of key drug patents that open the door to generic competition.
That’s not all pharmaceutical stocks are good for, however. As it turns out, there are plenty of surprisingly compelling dividend stocks tucked away within the pharmaceutical sector … particularly here in the shadow of recent marketwide weakness.
One just has to be willing to go on the hunt for them from this less-common angle.
To that end, here’s a closer look at 10 of the market’s better dividend stocks to buy among this overlooked sliver of income-producing names, in order from the lowest yield to the highest.
Pharmaceutical Dividend Stocks: Eli Lilly (LLY)
LLY Dividend Yield: 2.4%
Eli Lilly (LLY) doesn’t exactly rock the world of dividend stocks with its 2.4% yield. It’s a healthy showing, however, from a name that hasn’t upped its payout very much since 2010 after a multiyear streak of rising dividends.
In fact, Eli Lilly may be on the verge of ramping up its dividend again.
LLY froze its dividend growth largely in conjunction with patent expirations on Cymbalta and Evista. In the meantime, though, the company has found a way to cut costs in addition to launching a handful of new drugs. With top-line growth back on the table (and bottom-line growth presumably to follow), Lilly might just pleasantly surprise income investors soon.
Pharmaceutical Dividend Stocks: Bristol-Myers Squibb (BMY)
BMY Dividend Yield: 2.5%
Granted, the $14 million fine levied by the SEC for bribing hospital officials in China doesn’t exactly leave investors grinning from ear to ear, but in the grand scheme of things, it doesn’t exactly ruin Bristol-Myers Squibb (BMY) or its ability to pay a decent dividend.
In fact, the company may be even better equipped to raise its dividend again in the very near future.
Late last week, the FDA approved Bristol-Myers Squibb’s combination of Yervoy and Opdivo as a treatment for advanced melanoma. Both were already approved separately, but together they’re even better.
They come with a higher price tag together too … a whopping $250,000 for a full year of treatment. If it sells well, the current dividend yield in the mid-2% range could noticeably rise, pushing LLY up the rankings of the market’s top pharmaceutical dividend stocks.
Pharmaceutical Dividend Stocks: Novartis AG (NVS)
NVS Dividend Yield: 2.9%
The Novartis AG (NVS) pipeline and portfolio might be one of the pharmaceutical world’s most overlooked and underappreciated. In the past two weeks alone, the company has…
- Said its heart drug, Entresto, is likely to win approval in the EU,
- Posted an encouraging update on the results being achieved by Cosentyx as a treatment for arthritis,
- And may be on the verge of winning the FDA’s approval of a biosimilar equivalent to Enbrel, which is selling at a pace of $4.4 billion per year in a pre-biosimilar environment.
Point being, Novartis can and does get new, marketable products out, and has quietly been doing so since 2013.
As for where it fits in with other dividend stocks, the current yield of nearly 3% is healthy enough. But, with more drugs in the near-term pipeline than has been respected thus far, there may room for bigger distributions sooner than many investors may be expecting.
Pharmaceutical Dividend Stocks: Johnson & Johnson (JNJ)
JNJ Dividend Yield: 3.2%
It’s very likely everyone in the United States — not to mention the world — currently has a Band-Aid, Tylenol, Listerine, Visine, Splenda, Neutrogena or Sudafad branded product in their home right now. Indeed, it’s likely every home has more than one of those brands in their house at any given time.
It’s that recurring revenue that allows Johnson & Johnson to remain one of the market’s most reliable dividend stocks. The stock currently yields 3.2%, and J&J has raised its payout without fail for decades now.
The clincher: As Barron’s pointed out last month, not only is Johnson & Johnson sitting on $34 billion in cash, it seems increasingly interested in doing something with it. Most likely JNJ is holding out for the right acquisition target, which could prove to boost the income it passes along to shareholders.
Pharmaceutical Dividend Stocks: Sanofi SA (SNY)
SNY Dividend Yield: 3.3%
For a variety of reasons, French drugmaker Sanofi SA (SNY) manages to persistently be overlooked by American investors looking for income. Big mistake. Not only does its current dividend yield of 3.3% put it in the upper echelon of pharmaceutical dividend stocks to buy, but SNY may be overlooked and underestimated by the analyst community in terms of near-term growth.
Case in point? The EU’s approval of a cholesterol drug it co-developed with Regeneron Pharmaceuticals (REGN), called Praluent, late last month got almost the same dismissive shrug the drug got when the FDA approved it for the United States in July.
It’s a really compelling drug, though. It’s the first of its kind — a PCSK9 inhibitor — and some are forecasting annual sales of more than $4 billion by 2019.
Pharmaceutical Dividend Stocks: Pfizer (PFE)
PFE Dividend Yield: 3.4%
Pfizer (PFE) is arguably the least surprising name to find on a list of pharmaceutical dividend stocks to buy, even though its yield of 3.4% is only slightly better than average. That’s because its dividend history suggests it was built from the ground up to regularly share the wealth with shareholders.
The X-factor here that should work in favor of PFE shareholders is the recent acquisition of Hospira. Pfizer closed the $16 billion last month, essentially wading into the generic drug and biosimilar waters that it had tried to combat up until then.
Although Pfizer had to restructure and outright sell some divisions and product lines to appease regulators before they would approve the deal, it’s conceivable that the Pfizer name packaged with the remaining core business of Hospira could prove quite lucrative.
Pharmaceutical Dividend Stocks: Merck (MRK)
MRK Dividend Yield: 3.6%
While Pfizer is the quintessential name on a list of solid dividend stocks to buy within the pharmaceutical industry, Merck (MRK) is a very close second.
The last couple of years have been uncharacteristically lackluster for Merck. Sales fell from 2011’s peak of $48 billion to only $42.2 billion last year, as the mighty Merck fell off the same patent cliff so many of its peers did (although Merck fared better than most on that front). It looks, however, as if Merck’s portfolio of drugs may finally have more working for it again than against it.
As evidence to that end, one only has to look at developed-in-house drug Keytruda, which was already approved as a therapy for melanoma but was given the FDA’s green light last week as a treatment for lung cancer.
The approvals aren’t the encouraging part for current and would-be investors, though. What’s encouraging is how Merck had the guts and know-how to put this all-new kind of drug on the market. It’s what’s called an anti-PD-1 (programmed cell death) inhibitor … the first of its kind.
With Merck back in an R&D groove — and starting to get traction with its new drugs — the current dividend yield of 3.6% is poised to rise in the foreseeable future.
Pharmaceutical Dividend Stocks: AbbVie (ABBV)
ABBV Dividend Yield: 3.8%
The company name AbbVie (ABBV) and the drug name Humira tend to go hand and hand. That’s because the latter is not only the former’s top selling drug — it has been the pharmaceutical market’s top selling product for years.
It’s a problem, however, in the world of drugs since cash cows don’t live forever; the patent on Humira is expiring soon.
So what’s ABBV doing on a list of dividend stocks from the healthcare sector for income investors to consider? Simply put, nervous sellers have overshot the size and speed of the the impact that Humira’s loss of patent protection may have on Abbvie, and those same traders have underestimated the value that the acquisition of Pharmacyclics (PCYC) brings to the R&D pipeline.
In the meantime, ABBV is paying a yield of 3.6%, and should be able to ride Humira out for at least a while longer as other drugs in the pipeline are developed.
Pharmaceutical Dividend Stocks: AstraZeneca plc (AZN)
AZN Dividend Yield: 4.4%
U.K.-based AstraZeneca plc (AZN) has had it tough over the past year-and-a-half. After peaking in April of last year on rumors that rival Pfizer (PFE) was mulling an acquisition, the lack of any viable offer in the meantime has let AZN shares slide 20% lower.
Although miserable for those who owned it then, that pullback has quietly made AstraZeneca one of the sector’s more interesting dividend stocks in the meantime.
Fanning those flames is a likelihood that AstraZeneca could finally be entering a period of progress again. Deutsche Bank recently upgraded AZN to a buy, noting with the new opinion:
“We have increased our outer year sales and earnings per share forecasts by 5-7% and 6-12% respectively and expect the company to deliver a 2017-2020E compound annual growth rate and EPS of more than 12% as AZN exits its patent cliff.”
Pharmaceutical Dividend Stocks: GlaxoSmithKline plc (GSK)
Dividend Yield: 6.2%
Last but not least, GlaxoSmithKline plc (GSK) boasts a very attractive dividend yield north of 6%.
Just for the record, GlaxoSmithKline’s payouts are anything but steady, changing every single quarter (higher and lower) to reflect each particular quarter’s results. Then again, that’s the point — the company intentionally pays out the bulk of its income, as its product base lends itself to distribution.
Either way, when one takes a step back, it’s clear that the dividend grows more than it contracts.
Those who know GlaxoSmithKline well also know it’s hitting something of a headwind that could prove to be a threat to its payout, perhaps the biggest of which is upcoming expiration of the Advair patent, which opens the door to generic COPD and asthma therapies. What’s largely unappreciated about GSK, though, is that it’s got a ridiculously big pipeline, half of which the company expects to be approved within five years.
None of them are apt to be blockbusters, but moving to a more diversified portfolio and less reliance a small handful of products is beneficial in the long run.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.