Best Pharmaceutical Dividend Stocks to Watch in 2017
Pharmaceutical Dividend Stocks 2017
Dividend investing is a great strategy to earn income with, no matter how the overall markets are performing. The focus should be on businesses that have solid balance sheets and large margins to support dividend payments well into the future. One group of stocks that are known to do exactly this are pharmaceutical dividend stocks.
Now, many dividend investors tend to view the pharmaceutical sector as very risky. This is because a drug or treatment could either not get approved by a regulatory agency or have to be taken off the market due to the competitive nature of the sector.
I believe many dividend investors are missing out on a great investment opportunity by avoiding or simply ignoring the sector. Let me explain further why you should consider owning pharmaceutical dividend stocks in your investment portfolio.
When it comes to inflation on the pricing for drugs and treatments, there is no concern at all from pharmaceutical companies. This is because when there are price hikes, they tend to be higher than the inflation rate, supporting the dividend and the top and bottom lines of the balance sheet.
Once a drug or treatment has gone through all the regulatory hurdles, manufacturing costs are minimal. This is another reason to consider pharmaceutical dividend stocks, as this means large profit margins. Combined with the best pharmaceutical dividend stocks, these companies are seen as cash flow machines.
That cash flow is used to discover and develop new drugs or treatments via the research and development (R&D) department. The best pharmaceutical stocks see strong financial discipline from their administration, which ensures that spending does not get out of control. Typically, the range of money provided to the R&D division is between 10% to 15% on average, which is very conservative.
For future growth prospects, the best place to look is the pipeline of drugs and treatments currently in the works. There are various stages of the regulatory process before getting approval, so it is important to consider what the catalyst is for each drug or treatment and how close they are to being available for purchase. The potential growth also gives investors something to look forward to.
Such companies’ also have strong financial positions, with their debt being either non-existent or very little. And when there is debt held, it is being used wisely for the sake of shareholders and future growth.
Quality pharmaceutical stocks also reward shareholders with a dividend payment. The company has likely also engaged in share buybacks.
I have researched the best pharmaceutical dividend stocks to watch in 2017 and explained why you should consider ownership in them.
Pharmaceutical Stocks List 2017
|Gilead Sciences Inc.
|AbbVie Common Stock
|Cardinal Health Inc.
|Novo Nordisk A/S (ADR)
|Johnson & Johnson
1. Gilead Sciences Inc.
Gilead Sciences Inc. (NASDAQ:GILD) is as a research-based biopharmaceutical company which discovers, develops, and commercializes medicine, with a focus on treatments for liver disease, cancer, and inflammatory and respiratory disease, just to name a few.
GILD stock could end up being one of the best pharma stock to invest in under Trump. Ever since the campaign trail, the president has been mentioning a “tax holiday” in which companies that have cash in foreign markets would be able to bring it back into the U.S. at a lower tax rate.
The money could be used for many different things, one being acquisitions; consider the companies that compete directly against Gilead and their market share. Another option is acquiring a company in a segment that Gilead does not have any market exposure in to further diversify the treatments being offered.
This would reduce the overall risk as well, because less money would be deployed for R&D. When capital is put towards this division, there is the possibility of never seeing the money again because there are no guarantees that the treatment will be approved.
Another option is for Gilead to issue a special dividend. A special dividend is an unexpected payment to shareholders that is made with excess cash.
If Trump’s tax holiday was approved, there would be tax savings of approximately $6.9 billion. If this entire cash payment was used as a special dividend, then it would represent a payout of approximately 10%. And no shareholder would ever complain about having more money in their pocket.
If a special dividend and/or acquisitions do take place, they will not happen overnight, requiring patience. In the meantime, income could be earned through the dividend payment, which has been in place since 2015 and is increasing at a steady rate.
2. AbbVie Common Stock
AbbVie Common Stock (NYSE:ABBV) is one of the many biotech stocks, with a focus on the discovery, development, and manufacturing of various treatments.
ABBV is a dividend-paying stock which is part of the very unique S&P 500 Dividend Aristocrat Index. This index features Fortune 500 companies which have increased their dividend for at least 25 consecutive years. In the case of ABBV stock, it has seen an increase for the past 44 years.
If you’re wondering if this dividend can continue to grow, there are two areas to consider. The first is the payout ratio, the percentage that the dividend payment represents from the company’s earnings. For AbbVie, this represents about two-thirds of earnings, giving the possibility for further dividend growth.
The second is revenue trends. Looking at a five-year picture, this trend is positive, as revenue continues to see annual growth.
All this being said, there is a high probability of seeing more dividend increase announcements from AbbVie. This only means that if are a owner of the stock, your income should increase over time, as will the average yield on the initial investment.
3. Cardinal Health Inc
Cardinal Health Inc (NYSE:CAH) is a company with a presence around the world, with operations in more than 50 countries. Cardinal Health is focused on providing healthcare services to hospitals and pharmacies, as well as selling branded and generic treatments.
CAH stock rewards shareholders with a growing quarterly dividend, which is reviewed each May and has seen growth of 285% over the past decade. This trend can continue because just over a third of every dollar generated is paid out as a dividend.
Cardinal Health has also engaged in share repurchases. The most recent buyback approval was in May of last year, when the board of directors signed off on repurchasing up to $1.0 billion in the company’s shares. This follows the still-underway program from August 2014, for which $393.0 million still remains as of May 2016. (Source: “Cardinal Health Board of Directors Approves Quarterly Dividend, Authorizes Share Repurchase Program,” Cardinal Health Inc, May 4, 2016.)
Also remember that buybacks signal to the markets that those in the company believe the shares are undervalued, based on their own assessment.
4. Novo Nordisk A/S(ADR)
Novo Nordisk A/S (ADR) (NYSE:NVO) is a global healthcare company with products available in more than 180 countries.
Shares are down over 60% over the last year, so why should you consider NVO stock for investment?
First off, NVO stock is trading at a cheap valuation when compared to the industry average and overall market index. This is based on Novo Nordisk’s price-to-earnings ratio of 15.7 times; the industry average is 36.1 times and the market index is 26.7 times.
Based on the company’s financials, NVO stock should be trading at a higher valuation. The company has no debt on its balance sheet; all its cash flow is reinvested back into the business or used for the dividend.
Also, various other profits metrics make the investment look more appealing: the gross income, gross margins, and profit margins are all higher than the industry average. Also, Novo Nordisk’s pipeline has more than 10 drugs and treatments, and once these are available for purchase, the reinvestment back into the business should decrease. As a result, the above metrics should go ever higher.
Until the market realizes all the positives of NVO stock, a dividend could be earned. Even though the shares are down over the past year, consider owning them now to obtain a higher dividend yield when compared to purchasing at a higher price.
5. Johnson & Johnson
Johnson & Johnson (NYSE:JNJ) is one of the largest pharmaceutical companies in the world. The products within its portfolio include medical devices, oral care, over-the-counter pharmaceutical items, and treatments for various diseases.
JNJ stock is a blue-chip stock, at the top of its sector. The company’s earnings come in at a steady rate, no matter the economic environment.
I would also say JNJ stock is worth considering owning forever, going by J&J’s steady earnings and revenue. The company is also shareholder-friendly, as seen by the dividend payments. The dividend has been continually paid out to shareholders, increasing all the while, for the past 54 years. Share buybacks have also added to every investor’s bottom line.
Since JNJ is a large company already, growth is driven by acquisitions. On average, J&J normally makes two acquisitions a year in cash, usually in areas that it has exposure to and in new market segments. This protects the company’s market share and encourages its growth. With all this being said this is why, JNJ stock is on the list of the best pharmaceutical stocks to consider to buy in 2017.