Sit back and let the money roll in.
That's what stocks that pay great dividends allow investors to do. Three big pharma stocks boast especially attractive dividends: AbbVie (ABBV -1.03%), Pfizer (PFE -0.19%), and Novo Nordisk (NVO -1.93%). These drugmakers should reward investors with solid share appreciation over the long run as well.
Here's why AbbVie, Pfizer, and Novo Nordisk rank among the top dividend stocks -- and how they can pay you to wait while earnings grow.
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AbbVie: Checking off all the boxes
AbbVie claims an exceptionally strong dividend yield of 4.12%. The company's dividend has grown a whopping 60% since AbbVie was spun off from parent Abbott Laboratories in 2013. If you count the period when AbbVie was still under Abbott's wing, the company has hiked its dividend for 44 consecutive years.
There shouldn't be any problems for AbbVie in keeping the streak going. The company currently uses less than 63% of its earnings to fund its dividend payments. Those earnings are also expected to grow by more than 14% annually on average over the next several years.
AbbVie's current products will generate much of that anticipated earnings growth. Top-selling autoimmune disease drug Humira continues to chug along, generating more than $16 billion in 2016 -- a year-over-year increase of nearly 15%. Cancer drug Imbruvica made $1.8 billion last year. AbbVie projects peak annual sales for Imbruvica to reach $5 billion by 2020.
Several candidates from AbbVie's pipeline could also help fund future dividend payments. Cancer drug Rova-T, autoimmune disease drug risankizumab, and leukemia drug Venclexta all have the potential to generate billions of dollars in annual revenue.
Pfizer: Acquisitions helping drive growth
Pfizer isn't too far behind AbbVie. The big drugmaker's dividend yield currently stands at 3.74%. Pfizer's management has clearly expressed a commitment to paying dividends, with CFO Frank D'Amelio recently stating that the "dividend is an important part to our investing thesis."
At first glance, you might think Pfizer's dividend could be in trouble. The company currently spends more on dividend payments than it's making in earnings. Don't worry, though. Pfizer's cash flow is strong enough to easily continue funding its dividend. The company's earnings are also poised to grow at a solid pace.
Ibrance will be key to driving earnings higher. The cancer drug generated $2.1 billion in revenue last year. Analysts think that Ibrance could reach peak annual sales between $3 billion and $5 billion.
Pfizer's acquisition strategy should also pay off. The two big buyouts last year of Medivation and Anacor allowed Pfizer to pick up prostate cancer drug Xtandi and eczema drug Eucrisa. Each of these acquired drugs could bring in annual revenue of $2 billion or more.
Novo Nordisk: Expanding leadership into new areas
Novo Nordisk's dividend yield of 3.14% also looks quite attractive. The Denmark-based drugmaker uses only 63% of its earnings to fund its dividend program, so future dividend hikes seem likely.
Like AbbVie and Pfizer, Novo Nordisk can expect earnings to increase solidly in the coming years. The company already has a leadership role with its diabetes franchise, with a market share of 27% in the overall diabetes care market. That position should be in good shape with products such as Tresiba and Xultophy. Both insulin products could reach peak annual sales of $3 billion.
Novo Nordisk is also looking to become a leader in new therapeutic categories. The company awaits regulatory approval for hemophilia drug N9-GP. Another pipeline candidate for treating hemophilia, N8-GP, is currently in late-stage clinical testing. In addition, Novo Nordisk's obesity drug Saxenda won FDA approval in late 2014. The drugmaker also is evaluating semaglutide in weight management for obese patients in a mid-stage clinical study.
Another target area for growth is with growth -- growth disorders, that is. Novo Nordisk's Norditropin growth hormone treatment has been on the market for several years. And the company has a late-stage study in progress for experimental long-acting human growth hormone somapacitan.
Best of the best
Which of these top big pharma dividend stocks is the best? My pick is AbbVie.
As long as AbbVie can avoid significant competition for Humira, everything should go well for its stock and its dividend. The company thinks it can hold off biosimilar rivals for a few more years using the legal system. In the meantime, AbbVie will pay investors nicely to wait for its newer products to lessen dependence on Humira. Just sit back and let the dividends roll in.
