The Best Dividend in Big Pharma

Big pharma's a good place to start if you're looking for dividend stocks. Many of the largest players in the industry sport top dividends, rewarding long-term investors for their patience and faith. Separating the best big pharma stocks from the laggards can be a tricky affair given all of the drugs, businesses, and products that one major pharmaceutical company alone can offer. It's even trickier when you're on the lookout for income-paying stocks for the long run, given the patent cliff's toll on big pharma and the recent spate of companies spinning off unwanted businesses.

However, a quick glance across the Atlantic reveals one steady company with its eyes on the future, a stock that income investors everywhere should love: Sanofi (NYSE: SNY  ) .

Why Sanofi?
This French pharmaceutical giant might not be your first thought when you think of big pharma's titans, but make no mistake: This company's in pole position for the long haul.

Sanofi's taken a hit lately from the patent expiration of Plavix, the company's once-flagship blood clot drug that has since been torn down by generic competition. The drug's still one of Sanofi's top sellers with more than $600 million in sales in the most recent quarter, but it lost more than 6% in revenue on a constant currency basis.

Income investing is for the long term, however, and Sanofi's got more than enough in its cabinet of drugs to fuel the future despite Plavix's hits. Insulin medication Lantus will power Sanofi through 2015, when its patent expires; the drug is the company's top seller, recording more than  $1.7 billion in the last quarter alone, and sales are growing at a steady double-digit clip. Although Sanofi still expects profits to fall by as much as 5% in 2013 because of generic competition -- an expectation that sent shares plunging when announced -- the company's pipeline and recent moves should ease an income investor's concern over the future.

The company's acquisition of Genzyme back in 2011 has turned out to be a great move. With the approval of multiple sclerosis drug Aubagio last year and new rare disease treatment Kynamro fresh off its own approval, Sanofi's riding a wave of regulatory victories. These drugs and more should help the company deal with future patent expirations such as Lantus; it's a key factor that distinguishes Sanofi's stability over more risky competitors like AbbVie (NYSE: ABBV  ) , which relies on one drug -- Humira -- to power more than half of its sales and could be crippled by its patent loss.

But are future drug sales and relief from the patent cliff Sanofi's only distinguishing features over other big pharma dividend players? Hardly.

Separating from the pack
Sanofi might not offer the highest dividend in big pharma; its 3.6% yield only equals that of big-name rival Pfizer (NYSE: PFE  ) , and fellow pharmaceutical giant GlaxoSmithKline (NYSE: GSK  ) offers a superior 5.1% yield. That's a tempting pick for dividend investors on a purely financial basis.

However, Sanofi's got one step ahead of everyone else in big pharma in one of the future's juiciest areas: emerging markets. Sanofi racked up nearly 32% of 2012 sales from emerging markets, recording growth of more than 8% and reaching from Africa to Asia to Latin America. GlaxoSmithKline, as an example of a competitor, is still moving about resources to target emerging markets; Sanofi's existing profile gives it a key advantage on rivals yet to make a dent in developing economies that will wield tremendous revenue power in the future.

Sanofi's current business model also offers advantages for income investors. Rather than dumping business units a la Abbott's offload of AbbVie and Pfizer's spinoff of animal health unit Zoetis (NYSE: ZTS  ) , Sanofi's portfolio stretches from pharmaceuticals to animal health to consumer health and more. These segments have evolved as major drivers of growth -- consumer health alone picked up nearly 10% growth in 2012 -- and company CEO Chris Viehbacher sees opportunities to diversify in diagnostics and medical devices as well.

That diversification will protect Sanofi from patent expirations and other events that hit individual health care industries. While it could weigh on growth in the future, diversification makes this stock a safer pick than its more specialized rivals.

There are threats to Sanofi, of course. There's no telling how bad the Lantus patent expiration will hit in a few years, and the company's establishment in France means its exposure to Europe's myriad of economic woes hurts more than less-exposed rivals. Sanofi's emerging market experience and expansion should help mitigate that effect, however; the company's even gone as far as growing its animal health business in India, a testament to just how committed Sanofi is to securing its sales of the future.

If the plan works out, Sanofi will have plenty of financial legroom to keep paying -- and growing -- its dividend in years to come.

A strong shot for the long term
Sanofi might not be the most glamorous pick for income investors, but this company's strong dividend yield, diversification, and maneuvering for the future make it one to watch. Investors have worried about the company's downbeat expectations for 2013 profits, but the best income investors know to look for companies set for the long haul. With a full load of branded drugs to anchor future sales and a superb presence in emerging markets, Sanofi's got the right tools to build a bright tomorrow. This is one dividend that's not going to keep you up at night.

Sanofi's diversity protects it against the ups and downs of a fickle health care market, but its competitors aren't all as lucky. AbbVie is a perfect example, as investors in the new company are left wondering what the future holds once the company's golden goose, Humira, is cooked. The Fool's brand new premium report on the company answers the high-profile questions that AbbVie investors are asking, and as an added bonus, you'll receive a full year of free analyst updates as significant news hits. Simply click here now to claim your copy today.


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