If there were an official hierarchy of qualities that dividend seekers should consider before investing in a stock, a company’s underlying business would almost certainly come ahead of its yield. However, the two aren’t mutually exclusive. Some excellent, highly profitable corporations offer both a higher-than-average yield and a business that can sustain a dividend program for a long time.
Such companies can be wonderful options for income-seeking investments. If you’re in the market for that combo, let’s consider two healthcare companies that fit the bill: Bristol Myers Squibb(NYSE: BMY) and Novartis(NYSE: NVS).
Bristol Myers Squibb is a leading drugmaker with a large portfolio of medicines, with more than half a dozen each generating over $1 billion in annual sales. Though the company is especially prominent in the oncology market, its lineup features drugs in several other therapeutic areas, including immunology and rare diseases.
The company recently went through a period of slow revenue growth following a significant patent cliff, but the company has since bounced back. In the third quarter, the drugmaker’s top line increased by a healthy 8% year over year to $11.9 billion.
Some of its older products are still performing well. That list includes anticoagulant Eliquis, whose sales for the period increased by 11% year over year to $3 billion. However, the drugmaker has a portfolio of newer medicines that are slowly but surely making a larger impact on the company’s financial results.
Perhaps the most promising is Reblozyl, a medicine used to treat anemia in patients with beta-thalassemia. In the third quarter, Reblozyl’s revenue was $447 million, 80% higher than the year-ago period. Reblozyl was first approved in the U.S. in 2019, and should help drive top-line growth for many more years.
This and other newer products should help Bristol Myers Squibb overcome more upcoming patent cliffs, including the one for Eliquis, which should be out of exclusivity by the end of the decade. It will be a massive loss, but the company is showing that it can handle these challenges. Many of its newer products will earn label expansions. The company will also launch more brand-new medicines, allowing it to continue delivering strong financial results and maintain its dividend program.
The stock’s forward yield is about 4.2% — compare that to the S&P 500‘s 1.3% — while the company has increased its payouts by just under 38% in the past five years. Bristol Myers Squibb might not be the flashiest stock on the market, but it is a good pick for dividend investors.
Novartis is another pharmaceutical leader with a deep product portfolio. At the end of the third quarter, 11 of its medicines had already generated more than $1 billion in sales for 2024, with most of these moving in the right direction.
Novartis’ top-selling drug is Entresto, a legacy medicine for heart failure whose sales in the third quarter increased by 26% year over year to $1.9 billion. Cosentyx, a drug for plaque psoriasis, came in second place with revenue of $1.7 billion, 27% higher than the prior-year quarter. The company’s total sales increased to $12.8 billion, 9% higher than the year-ago period.
Cosentyx will soon see its U.S. patent expire, but Novartis does have newer medicines that should help drive top-line growth. These include Fabhalta, a treatment for paroxysmal nocturnal hemoglobinuria (a rare blood disease) that first earned the green light in December 2023. Last year, it won a label expansion for IgA nephropathy (a kidney disease). While Fabhalta only generated $44 million in the third quarter, it’s still in the early innings of its commercial life and will earn more approvals, including in other countries.
Fabhalta alone won’t replace Cosentyx, but Novartis’ pipeline features 105 programs, including some brand-new medicines. So Novartis has a strong underlying business, which has allowed it to increase its dividend for the past 27 years straight. The company’s forward yield is now about 3.7%, while it boasts a reasonable cash payout ratio just under 62%. This healthcare leader can provide both stability and regular income to risk-averse investors.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.
