bad news? If mRNA and PFE weren’t part of your pharmaceuticals investment portfolio, last year was tough. Good News? Experts expect pharma prices to bounce back — historically, it’s rare to see two low years in a row. Analysts also say top health care names are poised for a resurgence in 2022.
Despite all this, there are 3 pharma stocks that still consistently give over 3 per cent returns, with conservative payout ratios. Keep reading to find out who they are – you’ll probably recognize a thing or two.
roller coaster ride
Pharma stocks performed relatively poorly in 2021. The SPDR S&P Pharmaceuticals ETF (XPH) was down about (-10.5%), and the SPDR S&P Biotech ETF (XBI) was down about (-20.4%). The industry faced headwinds in 2021 as hospitals delayed procedures and elective surgeries. These delays impacted the revenue and earnings of pharma stocks. In addition, rising infections in late 2021 raised concerns again about whether sales and earnings growth would normalize in 2022.
Despite the recent uptick in stock prices, pharma stocks are still down or flat at 1 year back. Furthermore, compared to the S&P 500 Index and the Nasdaq, pharma stocks underperformed last year. The S&P 500 index was up about 27%, and the NASDAQ was up about 21.4% in 2021. This loss has made pharma stocks a value to investors. Furthermore, some pharma stocks are offering yields of over 3%, adding to the conservative payout ratio attractiveness.
Three pharma stocks for investors to consider for their portfolios are Merck (NYSE:MRK), Amgen (NASDAQ:AMGN) and Bristol-Myers Squibb (NYSE:BMY). All three stocks are dividend growth stocks with 10+ years of dividend growth.
Merck – a cash cow
Merck is one of the largest pharma companies in the world. The company has flagships with Keytruda (cancer immunotherapy), Januvia (diabetes), Gardasil (HPV), Pro Quad (MMR vaccine), Varivax (varicella vaccine), Bridion (muscle relaxant) and Pneumovax 23 (pneumococcal vaccine). There are franchises. Keytruda is Merck’s number one selling drug, with estimated sales of $17 billion in 2021. This drug is key to Merck’s growth, and the company is expanding the number of indications. Additionally, US patents do not expire until 2028.
Merck has faced some setbacks recently, including delays in clinical trials, discouraging efficacious results for mollupiravir (antivirals), and potential generic competition for Januvia. However, Merck’s R&D strength and its recent acquisition of Acceleron are restoring the pipeline, particularly in oncology. This fact bodes well for Merck’s shareholders.
Merck’s forward dividend yield of ~3.4% is supported by solid free cash flow of approximately $8.158 million over the past 12 months. Earnings per share covers dividends, and the payout ratio is conservative at about 47%.
Merck’s dividend increase was up ~6.2% to $0.69 per share from $0.65 per share last quarter. The dividend growth rate was 7.4% CAGR over the last 5 years. Merck has raised dividends for 11 consecutive years, and the FCF and low payout ratio support future growth. The valuation is reasonable at a price-to-earnings (P/E) ratio of 14X.
- Ticker: MRK
- Market Cap: $205.6 billion
- Annual Dividend Rate (FWD): $2.76
- Dividend Yield: 3.6%
Amgen – High Dividend Growth
Amgen is the largest biotech company globally. The company has a portfolio of solid treatments, including Neulasta (neutropenia), Enbrel (autoimmune disease), Prolia (osteoporosis), Xgeva (fractures in cancer patients), Kyprolis (multiple myeloma), Repatha (cholesterol), and Amovig (migraine). ) Are included. , Many of these drugs are blockbusters with sales and growth of over a billion dollars.
Amgen’s share price is struggling as investors worry about declining sales for Neulasta and Enbrel. Neulasta is experiencing increased competition from biosimilars, and Enbrel’s branded competition is seen as more effective.
However, Amgen has a solid pipeline. The company bought a blockbuster drug Otezla (Immunology). In addition, Lumcross (lung cancer) and Evenity (osteoporosis) have recently received regulatory approval. In addition, Amgen has several oncology and immunology therapies in phase 2 or 3 trials, which should still launch one product per year, even after accounting for attrition.
The company is known for its high dividend growth rate, and has a Compound Annual Growth Rate (CAGR) of ~31.7% over the past decade, approximately 17.1% over the past 5 years, and approximately 18.6% over the trailing 3-years. Amgen’s forward dividend yield is ~3.3%. Furthermore, the payout ratio is relatively conservative at ~46%, leaving room for growth in the future. Amgen is trading at an earnings multiple of ~14X.
- Ticker: AMGN
- Market Cap: $132.6 billion
- Annual Dividend Rate (FWD): $7.76
- Dividend Yield: 3.3%
Bristol-Myers Squibb – a leader in oncology
Bristol-Myers Squibb, a large pharma company, acquired Celgene in 2019 for $74 billion, making it a leader in oncology. Important drugs include Opdivo (cancer), Yervoy (melanoma), Revlimid (multiple myeloma), Pomalyst (multiple myeloma), Eliquis (stroke), Orencia (RA and psoriatic arthritis), Abraxane (chemotherapy) and Sprycel (leukemia).
Bristol-Myers faces competition for many of its treatments and a loss of exclusivity for some of the top sellers over the years, making investors hesitant about the stock. Furthermore, the company has had little success for its coronavirus treatment, leaving its competitors behind. As a result, Bristol-Myers’ stock price has remained flat for years. However, revenue per share, free cash flow and non-GAAP earnings increased. Therefore, the valuation is about 8.7X lower.
However Bristol-Myers is not standing still. The company’s three best-selling drugs, Revlimid, Opdivo, and Eliquis, are still growing. In addition, there are four treatments in the pipeline in late-stage clinical trials: rablozil (blood disorder), mavacametane (rare disease), ducravasitinib (immunology), and raltelimab (cancer). If successful, these drugs should accelerate development.
The dividend yield is approximately 3.3% and is supported by a low payout ratio of ~29%. This low value augurs well for future dividend growth and provides confidence in the dividend security. In addition, Bristol-Myers has extended the dividend for another 15 years.
- Ticker: BMY
- Market Cap: $144.1 trillion
- Annual Dividend Rate (FWD): $2.16
- Dividend Yield: 3.3%
Disclosure: Dividend Power is long AMGN.
Disclaimer: Dividend Power is not a licensed or registered investment advisor or broker/dealer. He is not giving you personal investment advice. Please consult a licensed investment professional before investing your money.
This article was produced by Dividend Power and syndicated by Wealth of Gexo
