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All Contents © 2017The Kiplinger Washington Editors
By James Brumley
| February 2017
When investors are on the hunt for income-driving dividend stocks, they often gravitate toward utilities or consumer staples names. And well they should. Those businesses are essentially recession-
proof, so the income — in the form of dividends — they pass along to shareholders is quite reliable.
Conversely, pharmaceutical stocks are rarely seen as effective dividend stocks. Although drugs are also relatively non-cyclical, these stocks are often impacted by an ever-changing regulatory
environment and the ever-changing strength or weakness of a drugmaker’s portfolio and pipeline.
As it turns out, however, some of the best-known Big Pharma names are also very solid dividend providers. These drugmakers dole out income to shareholders by leveraging their size to constantly
refresh their drug portfolios. In fact, the average dividend yield for all the major pharma stocks right now (and bear in mind there are some that pay nothing) is a healthy 2.35%. That’s still less than the typical 4% payout utility stocks boast right now.
Given the potential for growth within the pharmaceutical sector versus very limited potential for capital appreciation among utility stocks, that’s not a bad yield at all.
Of course, the stocks that we will focus on today have substantially larger payouts.
Here’s a closer look at the top nine pharmaceutical stocks that income hunters should consider at the moment.
Prices and data are from the original InvestorPlace story published on February 13, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Dividend yield: 4.2%
A year-and-a-half ago, Gilead Sciences, Inc. (GILD) was sitting on top of the world. It had two of the best and most expensive hepatitis C treatments on the market. And it was
pulling in money hand over fist.
Ironically though, Gilead arguably became a victim of its own success and its own greed, simultaneously ignoring the possibility that another competitor may come up with something better and/or more
It looks like that competitor is going to be AbbVie Inc (ABBV).
Earlier this month, the company announced the FDA had given in its Hep-C therapy glecaprevir (ABT-493)/pibrentasvir (ABT-530) a priority review. A priority review doesn’t guarantee approval, but it
does indicate the Food and Drug Administration acknowledges there’s an urgent need for a strong solution to a problem. The hepatitis C market is undoubtedly significant.
Either way, with a yield of 4.2% and a strong history of increasing its payments, AbbVie rates as one of the top pharmaceutical dividend stocks out there.
Dividend yield: 5%
Pharmaceutical company GlaxoSmithKline plc (GSK) dished out its fourth-quarter numbers earlier this month.
Earnings were better than expected, but the drugmaker cautioned shareholders that 2017 could be rough thanks to a growing amount of generic drug competition — particularly generic asthma drugs, which
pose a risk to Glaxo’s asthma drug Advair.
That weakness, however, may already be baked into the price of GSK, and then some.
This pharmaceutical stock was trading above $55 in early 2014. However, it has since moved back to a price of $40 on the concerns CEO Andrew Witty voiced. The end result of that ongoing pessimism
is a stock that yields a very attractive 5%, backed by a company that continues to grow the bottom line despite all the naysaying.
Aside from Advair, GlaxoSmithKline makes Augmentin, Zofran and Paxil, as well as Aquafresh toothpaste.
Dividend yield: 4%
Yes, Teva Pharmaceutical Industries Ltd (TEVA) is the stock that plunged more than 6% on Tuesday following
news that CEO Erez Vigodman was stepping down. After settling bribery charges for an amount in excess of $500 million following the unanswered loss of several patents (including breadwinner
drug Copaxone), something had to change.
But don’t all these headwinds paint a grim picture?
They did, but in many ways, the Vigodman news is also something of a catharsis — things can only get better from here. See, TEVA shares are down more than 50% since the middle of 2015, as all the
possible worst-case scenarios were factored in.
From here, all you’re left with is a company that’s likely reached something of a bottom, and is paying out 4%. Recently reported top- and bottom-line beats for the fourth quarter are a promising development, too.
Dividend yield: 3.9%
Sanofi SA (SNY) may be the most overlooked of the major pharmaceutical stocks.
That’s possibly because it’s based in France and doesn’t get the same kind of media traction names like Merck & Co., Inc. (MRK) and Pfizer Inc. (PFE) get. Or perhaps it’s just the fact that Sanofi doesn’t have any show-
stopping drugs, and rather focuses on what it knows it can sell.
Whatever the case, Sanofi yields a respectable 3.9%, and has been a reliable payer to boot.
One thing to watch if you do tiptoe in: The injunction that prevented Sanofi from selling cholesterol drug Praluent has been lifted, but only temporarily. It needs to prove in a courtroom that
it did not violate a patent currently held by Amgen, Inc. (AMGN). Given that the court action has been all overridden in
Sanofi’s favor, however, bodes well.
If nothing else, owning SNY offers geographical diversity, which is a worthwhile trait to chase if you hold several pharmaceutical stocks.
Dividend yield: 4.7%
AstraZeneca plc (AZN) yields nearly 5%, and that’s despite a deteriorating dividend payment since 2014.
What gives? The shrinking payment is more or less in step with shrinking revenue and shrinking profits. Things aren’t apt to improve this year either, with the U.K.-based pharmaceutical company warning investors to look for another single-digit percentage dipped in revenue for 2017. The organization has simply been unable to recover from a string of patent expirations.
But AstraZeneca does have an ace in the hole.
The Big Pharma outfit’s trial of a lung cancer immunotherapy is potentially game-changing. The so-called Mystic trial is reviewing the effectiveness of a combination of durvalumab and tremelimumab as a treatment for previously-untreated long cancer patients.
And it’s no small matter. Trinity Delta analyst Mick Cooper recently explained of the trial, “Rarely has a single trial result been so crucial to a company the size of AstraZeneca.”
If it turns out well, not only will that dividend remain healthy, but it should start to grow again.
Dividend yield: 3.9%
There’s no specific reason that’s earned Pfizer Inc. (PFE) a spot on the short list of pharmaceutical stocks to buy for the dividends they pay out.
The yield of nearly 4% is solid, though not a standout figure.
And yet, Pfizer is arguably the one name among any of the nine that could fit into almost anyone’s portfolio for one simple reason: It has a ton of diversity built into it already. Yes, it has pharmaceuticals like Lipitor, Enbrel, Prevnar, Viagra, Lyrica and more. But PFE isn’t just a drugmaker. Pfizer is the name behind ChapStick, Preparation H and Advil, and also is the maker of a variety of dietary supplements.
It has been a winning formula. Although Pfizer ebbs and flows like any other stock, this company has been a picture of consistency, particularly on the earnings front.
Slow and steady wins the race.
Dividend yield: 3.1%
It’s tough to be a fan of Gilead Sciences, Inc. (GILD) these days.
As was mentioned already, two years ago the company was sitting on top of the world. Its then-new hepatitis C drugs Sovaldi and Harvoni cost a small fortune, but patients and insurers were willing to pay up because the treatments were practically a guaranteed cure.
A company can only charge extortion-like prices for so long, however, before shrinking goodwill and competition catch up.
GILD shares have been cut to almost half their value from mid-2015, as investors have increasingly come to grips with the fact that Sovaldi’s and Harvoni’s sky-high prices simply weren’t sustainable. Indeed, Gilead shares were hit hard again on Wednesday after the company warned the market that sales of its hepatitis C drugs for 2017 would be roughly 30% less than expected by analysts.
Here’s the thing: This bad news has been priced into the stock’s value, and then some, for nearly two years. The sellers overshot.
While the yield of about 3% may not be stupendous, what Gilead lacks in payout compared to other pharma stocks, it makes up for in sheer value. The trailing price-to-earnings ratio is a ridiculous 6.1, and one can’t help but wonder if shares are reached that point where things literally can only get better. GILD’s pipeline and portfolio are still plenty potent.
Add Novo Nordisk A/S (NVO) to your list of pharmaceutical stocks that also pay respectable dividends.
Denmark-based Novo Nordisk makes several — and several kinds of — products, although most consumers would struggle to even name just one drug it makes. NVO’s claim to fame is its diabetes portfolio; it’s the name behind Victoza, as well as a couple of injection devices.
Being boring and remaining off the radar has paid off for Novo Nordisk, too. Revenue and earnings are growing steadily on a year-over-year basis, sometimes by double digits. Moreover, its competition doesn’t seem to have noticed the kinds of profit margins the company is putting up — 34% over the course of the past four reported quarters. The rest of the industry is leaving Novo alone, uncontested.
Equally amazing is the fact that the company continues to split its growing earnings right down the middle, 50/50 with shareholders. So, while the current yield of 3.9% is solid on its own, Novo Nordisk may well boast the best dividend-growth rate among all of the pharma stocks under the microscope here.
Plus (and like Sanofi), Novo Nordisk adds some geographic diversity to your income stream.
Dividend yield: 9%*
Just so there’s no confusion, PDL BioPharma Inc (PDLI) is easily the riskiest stock on this list of pharmaceutical stocks that pay dividends because … well, it’s not currently paying a dividend.
The trailing dividend yield is technically 9%, but that calculation only takes into account the quarterly payout it delivered during the first two quarters of 2016.
So why, pray tell, should PDLI even be mentioned on a list of pharmaceutical stocks with big dividend potential?
Because it might reinstate the dividend again.
Long story short: PDL BioPharma was formed solely to convert low-level, easy-to-sell drugs into an income stream. It was a genius idea at the time because it could buy rights to good drugs on the cheap. As the patents on the portfolio’s drugs expired, though — and as those drugs became tougher to market — replacement drugs have been difficult to find, and more expensive.
Thing is, the company seems to have figured out how to cost-effectively get back in the game. Per its Q3 wrapup posted last month, PDL “is attempting to revive itself by providing financing at favorable terms to smaller companies that are working on promising healthcare solutions.”
It’s still a long shot, and certainly not the first of the dividend stocks in the industry you’d want to own. For the patient investor, though, this is an income-oriented idea at least worth putting on your long-term watchlist.
This article is by James Brumley of InvestorPlace. As of this writing he held none of the aforementioned securities.
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