3 Big Pharma Stocks That Could Raise Their Dividends

Image source: Getty Images.

There are few things I find more satisfying than watching my dividends grow.

While most U.S.-based big pharma companies are struggling to make their dividend payments, Johnson & Johnson (JNJ -0.69%) and AbbVie (ABBV -1.03%) could easily raise their dividends in the quarters ahead. Over in Switzerland, Novartis (NVS 1.10%) is poised to continue its annual dividend raising streak as well.

Let's have a closer look what these companies are offering and how they'll keep those payouts growing. 

1. Johnson & Johnson: A dividend-raising legend

In April, Johnson & Johnson increased its quarterly dividend payment by 6.7% to $3.20 per share annually, marking 54 consecutive years of raises. Those payments take up about 57% of trailing-12-month earnings, or just 48% of this year's earnings estimates. Either way you slice it, there's plenty of room for the dividend to grow beyond the 2.6% yield the stock offers at recent prices.

While consumer goods and medical devices comprise a slight majority of J&J's top line, it's the pharmaceutical segment that's driving the bottom line -- and thus the dividend -- higher. Last November, J&J's multiple myeloma treatment, Darzalex, earned a conditional approval for treatment of patients who have not responded to at least three prior lines of therapy.

About 30,000 Americans are diagnosed with multiple myeloma in the U.S. each year, but far fewer fail to respond to three different lines of therapy. Luckily, Darzalex could earn an important expansion to treat patients earlier. Investigators added Darzalex to a standard regimen that included Celgene's Revlimid for patients who had progressed after one prior line of therapy. In the group receiving Darzalex, 78% of patients were alive at 18 months without disease progression, versus just 52% in the group receiving the Revlimid regimen alone.

Celgene expects Revlimid sales to reach about $6.7 billion this year. It's hard to tell whether Darzalex will reach these heights, but it will almost certainly play an important role in earlier multiple-myeloma treatment settings. This will go a long way toward helping J&J continue its streak of substantial dividend raises.

2. AbbVie: Room for more raises

If you include the dividend history of AbbVie's former parent company, Abbott, then AbbVie has a 44-year streak of annual dividend raises. Following the 2013 spinoff, AbbVie shareholders have been treated to frequent hikes that have pushed the quarterly payout up 42.5% to $0.57, or $2.28 annually, for a yield of about 3.6% at current prices.

Despite the hikes, the company only needs about 48% of this year's estimated earnings to make payments. That leaves plenty of runway for more increases, and its share of sales from recently purchased leukemia therapy Imbruvica should help extend the tarmac. 

Earlier this year, Imbruvica pills earned FDA approval for treatment of patients with the most common form of leukemia, giving this large group its first chemotherapy-free treatment option. Worldwide sales of the drug could eventually contribute $7 billion annually to AbbVie's top line, helping it to continue increasing dividends well into the future.

3. Novartis: High yield -- and expectations

Since its inception in 1996, Novartis AG has increased its annual dividend for 19 consecutive years. For U.S. holders of its ADRs, currency fluctuations between the dollar and the Swiss franc can alter those increases for better or worse, but the company is poised to make some big increases in the years ahead.

The company tends to propose a dividend amount for the previous year in February. The most recent payment of 2.70 Swiss francs would equal about $2.75 per share today, but it was $2.67 at time of the annual payout earlier this year. For U.S. ADR holders, the most recent payment translates to a yield of about of 3.3% at recent prices and exchange rates.

Image source: Novartis.

The most recent payment required less than 60% of the company's expected earnings for this year, giving Novartis plenty of room to increase its dividend next February. The company's new heart failure pill, Entresto, could help it make much bigger increases in the years to come.

Heart failure sounds more like a cause of death than a disease, but for about 5.1 million Americans, it's a chronic condition characterized by the heart's inability to pump enough blood through the body. Novartis' Entresto has been shown to reduce the risk of death from heart attack or stroke by 20% over the standard of care, and it's currently approved to treat about 2.2 million heart-failure patients in the U.S. alone.

Entresto also reduces costly hospitalizations, and a study published in The Journal of the American Medical Association showed that its price of about $4,560 per year is actually cost-effective, considering the reductions in total spending associated with heart failure. At its peak, this drug could contribute up to $10 billion annually to Novartis' top line, making big dividend hikes in the future a breeze.