Picking solid dividend stocks can be tricky. Buying a stock with a really high dividend yield is tempting, but many stocks with high dividends got this way because their share prices fell. Often there is a real reason for the decline in shares, such as a decline in revenue or earnings.
Many stocks with high yields also have high dividend payout ratios, meaning a company devotes most of its earnings to those dividends. This could leave a dividend at risk of being cut, which could lead to a double whammy for investors. A dividend cut negates the benefits of buying a high-dividend stock, and usually the share price falls as disgruntled investors sell the stock.
So, when looking for three healthcare stocks with supercharged dividends to buy in the market’s sell-off, it makes sense to look for companies strong enough to handle a down market while protecting their dividends — companies like Bristol-Myers Squibb (BMY 0.90%), AbbVie (ABBV -1.25%) And Pfizer (Pfe -1.59%).
Three pharmaceutical companies have a dividend yield of more than 3%, yet their dividend payout ratio is below 50%. On top of that, all three stocks are trading below 24 times earnings.
Bristol-Myers Squibb’s pipeline is popping
Bristol-Myers’ quarterly dividend works out to a yield of 3.2%. The company raised its quarterly dividend this year by 5.6% to $0.57, marking the 13th consecutive year it has increased its dividend. Its payout ratio of 36% leaves plenty of room for continued growth.
Bristol’s stock has risen more than 10% in the past 12 months, while S&P 500 The average is down more than 17% over that period, showing the company’s strength in a down year. Over the past 10 years, Bristol has grown quarterly earnings by 193%.
For the nine months, the company generated $34.8 billion in revenue, up just 1% from the same period a year ago. However, the company is seeing continued revenue growth from blood thinner Eliquis (up 12% in nine months) and cancer drug Opdivo (up 9%), as well as new therapies that are breaking ground, as the company has 51 compounds in its pipeline.
New product portfolio revenue rose to $553 million in the quarter, up 61% year-over-year, thanks to increased sales from Abecma, used to treat refractory multiple myeloma; Opdualag, used to treat advanced melanoma; and Reblozil, used to treat anemia in patients with the genetic blood disorder beta thalassemia.
AbbVie continues to grow
AbbVie is another company that easily bucked the share declines affecting other stocks in 2022, and it’s up more than 19% over the past year.
In the first nine months of 2022, the company’s revenue was $33.56 billion, up 6.2% from 2021. Over the past 10 years, it has grown quarterly revenue by 242%.
The pharmaceutical company raised its quarterly dividend by 5% this year to $1.48 per share, which equates to a yield of 3.6%. Calculate the time spent in this year and as part of it Abbott Laboratories, AbbVie has raised its quarterly dividend for 51 consecutive years. Since it spun off from Abbott in 2013, AbbVie has increased its dividend by 270%. Nevertheless, it has kept its payout ratio below 50% and it currently stands at 44%.
AbbVie has 12 drugs expected to bring in more than $1 billion in revenue this year, led by blockbuster Humira, which is forecast to generate at least $20 billion in sales. The company has a large portfolio of immunology and oncology therapies, including two, Renvok and Skyrizi, which are expected to reach $7.5 billion in sales this year and $15 billion in annual sales by 2025. They continue to add label extensions to drugs that will make up for Humira’s declining sales due to patent loss this year.
Pfizer is ready to reload
Pfizer raised its quarterly dividend this year by 2.5% to $0.41, representing a yield of about 3.3%. The company has raised its dividend for 14 consecutive years. The payout ratio is just 38%, leaving plenty of room for continued dividend growth.
Pfizer said in its third-quarter report that it expects revenue of between $99.5 billion and $102 billion this year, up from $81.3 billion last year. It also projects annual earnings per share (EPS) between $6.40 and $6.50, compared to last year’s EPS of $3.99.
Despite an attractive dividend and solid financials, the stock is down nearly 13% over the past year. Investors are wary as the company faces a potential loss of $17 billion in revenue from 2025 to 2030, thanks to various patent expirations.
However, like AbbVie, it has an active pipeline that should more than replace those losses. The company, as of December, said it expects to launch 19 therapies in the next 18 months, and those therapies have the potential to generate $20 billion in annual revenue over time, according to chief commercial officer Angela Hwang.