Finding stocks with higher dividend yields than CVS Health Corporation (CVS 1.07%) is easy. Finding stocks with quantifiably better dividends than the large pharmacy-services company is a different story altogether. That's especially true if you try to look only at stocks within the healthcare and retail sectors -- two areas in which CVS Health competes.
But while it's not necessarily easy to find stocks with better dividends than CVS Health, it's not impossible. Here's why AbbVie (ABBV -0.01%), Gilead Sciences (GILD -0.22%), and Pfizer (PFE 0.76%) fit the bill.
AbbVie blows CVS Health out of the water when it comes to dividend yield. The biotech's dividend currently yields 3.68% compared with CVS Health's 2.51%. However, investors should look at more than just yield when evaluating dividend stocks.
Payout ratio is also important. AbbVie doesn't stack up as well against CVS Health in this category. The biotech uses nearly 61% of earnings to fund its dividend, while CVS Health uses just over 37%. Still, though, AbbVie doesn't appear to be in any trouble with keeping the dividends flowing. CVS Health has an advantage on payout ratio, but it's not enough to make up for AbbVie's much higher yield.
Are there any gotchas with AbbVie that could still make it less attractive to investors? The company does face the possibility of biosimilar rivals to top-selling drug Humira. If sales for Humira tanked, AbbVie would be in trouble -- and so would its dividend. The biotech should be able to use the legal system to its advantage, though, and fend off rivals for a few more years. For now, at least, AbbVie has a better dividend than CVS Health.
Gilead Sciences' dividend currently yields 3.18%. That gives the big biotech a clear advantage over CVS Health. Gilead's 20.4% payout ratio is also much lower than CVS Health's.
You could argue, however, that Gilead's business issues make it less appealing than CVS Health. Gilead's revenue and earnings have fallen as sales for its hepatitis C virus (HCV) franchise plunged. The biotech's other drugs are doing well overall, but that hasn't been nearly enough to make up for the HCV franchise problems.
But do these issues mean that Gilead Sciences isn't a better dividend stock than CVS Health? I don't think so. Gilead continues to have strong cash flow and appears to be committed to its dividend program. The biotech's management has indicated its desire to make one or more acquisitions to boost earnings. If its efforts don't succeed, perhaps in a few years Gilead's dividend won't be as strong. For now, though, Gilead's dividend clearly beats CVS Health's.
Of our three challengers to CVS Health, Pfizer claims the highest dividend yield of all. Pfizer's 3.91% yield trounces CVS Health's and is well above the yields of AbbVie and Gilead Sciences.
Where Pfizer raises questions, though, is with its high payout ratio of nearly 103%. Can Pfizer continue paying out more on its dividends than it makes in profits? Not indefinitely. Does that mean the big drugmaker's dividend is in trouble? Not really. Pfizer's cash flow is very strong and should allow it to keep paying dividends at current (or higher) levels for several years even if earnings don't increase.
The good news for Pfizer is that those earnings should increase, even if not spectacularly. Pfizer has several products with strong sales growth, including Lyrica, Eliquis, Ibrance, and Xtandi. In addition, the company's pipeline could produce several new blockbuster drugs.
Where CVS Health wins hands-down
AbbVie, Gilead Sciences, and Pfizer have better dividends than CVS Health does -- for now. However, one area where CVS Health wins easily over these stocks is in dividend growth.
Over the past five years, CVS Health has increased its dividend by nearly 43%. That's three times greater growth than Pfizer's dividend. It's more than twice the growth of Gilead's dividend. And it's a lot higher than AbbVie's 25.5% dividend growth during the period.
There's no guarantee that these dividend growth trends will continue, of course. If they do, though, it's only a matter of time before CVS Health comes out on top compared with each of the other healthcare stocks.