If there were such a thing as the dividend stock hall of fame, Johnson & Johnson (JNJ 0.05%) would be in it. After all, the company increased its dividend for a whopping 54 years in a row. But if you're looking for high dividend yields, there are better options. Here are three pharmaceutical stocks -- AbbVie (ABBV -0.38%), Bristol-Myers Squibb (BMY 0.48%), and Pfizer (PFE 0.19%) -- that have bigger dividends than J&J does.
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AbbVie: Faster, better, cheaper
There's an old maxim that says when it comes to being faster, better, and cheaper, you can only achieve two of the three. AbbVie's dividend seems to disprove the old saying, at least in comparison with Johnson & Johnson.
AbbVie has grown its dividend at a dramatically faster pace than J&J has. Since the company was spun off from Abbott Laboratories in 2013, AbbVie's dividend has increased by 60%. That's nearly twice as much as Johnson & Johnson's dividend increased.
Is AbbVie's dividend better than Johnson & Johnson's? Its yield of 4.27% is certainly higher than J&J's 2.82% yield. AbbVie does spend a little more of its earnings to cover its dividend than J&J does -- but not much more. And if you count the time that AbbVie was part of Abbott Labs, the company is pretty close to J&J's track record of dividend hikes with 45 years of consecutive dividend increases.
As for cheaper, AbbVie's stock looks more attractively valued than J&J's does on pretty much any metric used. While the stock's valuation isn't directly tied to the dividend, it could mean that AbbVie's shares have more upward potential than J&J's stock price does.
Bristol-Myers Squibb: Higher yield, better growth opportunities
Bristol-Myers Squibb can't check off all the boxes like AbbVie does. However, its yield of 3.27% handily beats Johnson & Johson's yield. Perhaps the more important factor for investors, however, is BMS' ability to grow its dividend in the future.
If you looked at the past five years, Johnson & Johnson has trounced Bristol-Myers Squibb's performance in increasing its dividend payments. I suspect that the tables might be turned in the future, though.
Wall Street analysts project that J&J will grow earnings by a little under 6% annually over the next five years. The healthcare giant's consumer and medical devices business segments appear likely to be a drag on overall earnings growth. By comparison, analysts expect Bristol-Myers Squibb to grow annual earnings by more than 14% over the next five years, thanks in large part to the potential for cancer drug Opdivo.
Even if the analysts' projections are off somewhat, Bristol-Myers Squibb seems likely to increase its earnings much more than J&J will. That earnings growth should allow the pharmaceutical company to increase dividends at a higher rate than it has in the past.
Pfizer: More than meets the eye
At first glance, you might think that Pfizer's relatively high dividend yield of 4.07% might be in jeopardy. The company is spending more on covering its dividend than its making on the bottom line. And Pfizer's anemic earnings growth over the last five years of less than 2% annually doesn't look great, either.
What that first glance misses, however, is Pfizer's strong cash flow and its much-improved growth prospects for the future. Pfizer's operating cash flow should allow it to easily cover its dividend payouts at current levels. The company would be able to do so even if its earnings only grew at recent historical levels.
But Pfizer's growth is likely to be much higher in the years to come. Sales for cancer drug Ibrance are soaring. The company has also bought growth through acquisitions. Pfizer landed another fast-growing cancer drug, Xtandi, from its 2016 buyout of Medivation and promising atopic dermatitis drug Eucrisa with its acquisition of Anacor.
Pfizer's dividend yield has beaten J&J's for nearly all of the last 10 years -- a period when the company's earnings performance wasn't as strong as J&J's. With Pfizer in position to post higher earnings growth than Johnson & Johnson over the next several years, it seems likely that the company's dividend yield advantage will be sustained.
But don't count Johnson & Johnson out
AbbVie, Bristol-Myers Squibb, and Pfizer have higher dividend yields than Johnson & Johnson does. That probably won't change anytime soon. However, I wouldn't count J&J out as a solid dividend pick.
J&J isn't as dependent on one drug as AbbVie is with Humira (or Bristol-Myers Squibb is becoming with Opdivo). It has a lot more cash than Pfizer does and could always spend that cash to buy more growth as Pfizer has done. The other companies might beat J&J on yield, but there's probably no pharmaceutical company on the market that will beat it on reliability.
