Pharmaceutical stocks have been on investors’ radar more than usual in the past year as the healthcare sector grapples with the not-so-novel coronavirus. While the world is looking to reopen, the headaches caused by Covid-19 are still present.
While restaurants are reopening and parts of the world are recovering, healthcare is still disrupted plagued by raw material shortages and supply chain hiccups.
Some pharmaceutical stocks have found themselves in the spotlight, playing an active role in the fight against Covid-19. Others have been cast aside, as patients forego elective procedures and as other delays create uncertainty.
However, there lies opportunities within the pharma space. Many of these businesses are quite profitable and their stocks trade at reasonable valuations. Further, many of these companies pay out handsome dividend yields.
So without further ado, let’s look at seven pharmaceutical stocks with attractive dividend yields.
- Pfizer (NYSE:PFE)
- Bristol-Myers Squibb (NYSE:BMY)
- Johnson & Johnson (NYSE:JNJ)
- Sanofi (NASDAQ:SFY)
- AbbVie (NYSE:ABBV)
- Amgen (NASDAQ:AMGN)
- CVS Health (NYSE:CVS)
Attractive Pharmaceutical Stocks: Pfizer (PFE)
Let’s kick off the list with a look at Pfizer. The company has become one of the top players — alongside Moderna (NASDAQ:MRNA) — in the fight against Covid-19.
At first, Wall Street looked at Pfizer with skepticism. Investors sold the fourth-quarter rally shortly after it announced its efficacy rates with the vaccine. While others have entered the Covid-19 vaccine race, Pfizer has been a mainstay with its vaccine.
J&J has run into clotting concerns, while AstraZeneca (NASDAQ:AZN) has had issues in Europe as well. China has even acknowledged that it’s had challenges with the efficacy rates of its vaccines. Throw in the fact that there are continued mutations of the virus and that may lead to booster shots in the future.
While those are not great developments for society, it does lead me to believe that Pfizer should have multi-year growth potential with its Covid-19 vaccine. That’s where Wall Street has been coming up short.
Instead, Wall Street seems to believe there will be a bevy of global competition and that Pfizer will see the equivalent of a one-time boost to its revenue as a result. To some extent, I think that’s still the consensus.
While consensus expectations call for 50% revenue growth this year, estimates also call for a 13% dip next year. Either way, that’s still impressive two-year growth results, while Pfizer stock pays a 4% dividend yield.
I’m not sure if Covid-19 would have made a difference for Bristol-Myers Squibb. The stock has had trouble gaining traction for awhile and the pandemic hasn’t seemed to alter its course much. Bristol-Myers is still digesting its massive but strategic acquisition of Celgene.
For its part, Celgene was not being managed that well at the time of acquisition. However, it had impressive growth, solid assets, incredible cash flow and traded at a low valuation.
For Bristol-Myers, it still boasts plenty of those attractive qualities. Analysts expect 9% revenue growth this year and 16% earnings growth. The latter suggests that either margins are expanding or the company is realizing synergies from its acquisition (or both).
However, that’s not the best part when it comes to Bristol-Myers. Instead, it’s the fact that shares trades at just 8.8 times this year’s earnings. Regardless of what happens from here, we know we aren’t overpaying for BMY stock.
That’s all while investors collect a 3% dividend yield.
Johnson & Johnson (JNJ)
Johnson & Johnson is an interesting company at the moment. Because of its single-dose Covid-19 vaccine, J&J was being viewed as an attractive option in the coronavirus fight. That compares to Pfizer and Moderna, which are both two-dose vaccines.
However, out of the nearly 7 million doses of J&J administered, six cases of a rare clotting issue were reported. It resulted in one death and one hospitalization. Not to minimize the death, but these are incredibly low statistics after millions of doses have been administered.
It should still be a viable vaccine candidate, both here in the U.S. and worldwide. When that news hit, shares fell 3.5% at one point that day, but closed lower by just 1.3%. It’s also rallied in seven of the eight sessions since.
Of course, it helps that the company recently delivered a top- and bottom-line earnings beat and raised its full-year outlook. The company also raised its dividend by roughly 5%, and now yields 2.6%. It’s also now raised its dividend for 59 consecutive years.
With double-digit revenue and earnings growth forecasts this year, look for J&J to be a winner in 2021.
In some regards, Sanofi reminds me of Bristol-Myers Squibb — a solid grower with an attractive dividend and a reasonable valuation.
Based in France, the company has its products in 170 different countries. In other words, it’s in virtually every corner of the world. Sanofi plays a huge role in vaccines, as well as specialty care. The latter includes rare diseases and rare blood disorders, oncology, neurology and immunology.
Given the size of its business, Sanofi is in a prime position for cash flow and growth. Analysts expect 9.6% revenue growth this year and 12.3% earnings growth. However, estimates call for an acceleration up to 16.3% earnings growth in 2022.
As it stands, Sanofi stock currently trades at about 13.5x this year’s earnings estimates. While more expensive than Bristol-Myers, it’s still considered a low valuation when compared to the overall market.
Sanofi also pays a hefty dividend yield, dishing out 3.7%.
AbbVie has been trading much better lately, as shares consolidate the 43% rally it enjoyed from late October to mid-January. Now trying to resolve to the upside, it’s not too late for investors to snag a tasty dividend.
Shares currently pay out a 4.7% dividend yield, an attractive amount for an income-oriented investor. However, it’s the company’s future growth opportunities that I like.
AbbVie announced its acquisition of Allergan for $63 billion almost two years ago and closed on the deal about a year ago. Of course, an unforeseen global pandemic has not helped the situation, which is part of why the stock was punished so much.
For instance, a top product from Allergan is Botox. However, Botox procedures fell off a cliff when Covid-19 hit, dealing a hit to the company. That’s short-term hit and investors know it. The larger concern has been the debt. But now that we’re seeing how the company will operate, there’s less concern.
AbbVie said it expects annual pre-tax synergies of $2 billion by the third year of the deal. Further, based on 2018 results, the two entities combined for more than $18 billion in operating cash flow. Management plans to get a credit boost, combining that with its impressive cash flows to pay down debt and maintain the dividend.
Amgen has had a busy month. On March 30, the company acquired Rodeo Therapeutics for more than $700 million in an effort to bolster its inflammation portfolio. On April 16, the company completed its $1.9 billion acquisition of Five Prime Therapeutics.
A few days later, the FDA granted Amgen’s bemarituzumab with Breakthrough Therapy designation for certain types of gastric and gastroesophageal adenocarcinomas, a type of cancer that starts in the glands. The treatment came from the company’s acquisition of Five Prime.
Then on April 23, Amgen company announced positive results from its Phase 3 trial for Otezla for plaque psoriasis. Anyone who’s watched cable news for more than five minutes has likely seen a spot for the drug.
So it’s been a busy stretch for the company. Now investors are hoping it results in some growth. Analysts expect low single-digit revenue and earnings growth this year, before 8% earnings growth in 2022. Perhaps this year’s estimates will improve with some of the recent news, though.
In the meantime, investors can bank on a 2.75% dividend yield.
CVS Health (CVS)
CVS Health isn’t a typical pharma company, but one may consider it among pharmaceutical stocks given its role as a pharmacy.
The stock has been trading much better lately, too. CVS stock recently hit its highest level since 2018, as bulls clearly see value. The $100 billion company kicks out a 2.7% dividend yield and clearly has momentum in its favor.
Investors are buying into management’s turnaround plans and don’t seem worried about Amazon (NASDAQ:AMZN) entering the pharmacy space. Analysts expect mid-single-digit revenue growth this year and next year, and almost 8% earnings growth next year.
After its acquisition of Aetna a few years ago, investors also seem content with CVS’s long-term growth stock.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.