Income investors have favored the pharmaceutical sector for decades. That makes sense since drugs tend to enjoy high margins and are needed in good times and bad. These factors allow pharma companies to crank out predictable amounts of cash flow that can be used to line their shareholders' pockets.
However, not all pharmaceutical companies are created equal. That's why investors need to be choosy about which stocks they buy. Thankfully, there are plenty of income-producing pharma stocks to choose from.
Here's a list of the 10 largest pharmaceutical companies that currently pay out a dividend:
|Company||Market Cap||Dividend Yield|
|Johnson & Johnson (NYSE:JNJ)||$381 billion||2.4%|
|AbbVie (NYSE:ABBV)||$157 billion||2.6%|
|Novo Nordisk (NYSE:NVO)||$129 billion||2.2%|
|Bristol-Myers Squibb||$101 billion||2.5%|
|Gilead Sciences||$97 bIllion||2.8%|
|Eli Lilly||$95 billion||2.4%|
Which of these stocks are worthy of a closer look? Here a look at my three favorites.
Johnson & Johnson
The Band-Aid maker has raised its dividend for 54 years in a row, which is a remarkable achievement. Clearly, this company has stumbled upon a winning formula.
What's Johnson & Johnson's secret to success? I'd argue that it's diversification. The company's been an innovation and acquisition machine for decades. Today J&J owns more than 230 operating businesses that are split up into three main segments: pharmaceuticals, medical devices, and consumer healthcare.
With brands like Listerine, Tylenol, and Aveeno, the consumer healthcare division is the one that most investors are familiar with. However, it is arguably the company's least important segment. In 2016, sales from this division were "only" $13.3 billion. That might sound like a big number, but it made up only 18% of total revenue.
J&J's medical device segment isn't well known to consumers, but healthcare providers around the world are very familiar with the company's wide range of surgical products. Medical devices accounted for more than $25 billion in total sales in 2016 for the company. That's nearly double what the consumer division pulled in.
That leaves J&J's most important division: pharmaceuticals. Total sales in 2016 were $33.5 billion, which comprised more than 46% of total revenue. Top sellers from this division include autoimmune-disease drugs like Remicade and Stelara, cancer drugs like Imbruvica and Zytiga, the blood thinner Xarelto, and the diabetes drug Invokana. While the company's product portfolio is already vast, J&J also sports a huge late-stage pipeline that should keep sales humming for years to come.
All in all, the sheer breadth of J&J's operations should give investors high confidence that its dividend track record will remain intact for years to come.
Investors in this Abbott Laboratories spinoff have enjoyed a profitable run thanks to autoimmune-disease drug Humira. Humira currently claims the top spot as the best-selling drug in the world, pulling in more than $16 billion in total sales in 2016. Despite its gargantuan sales figures, Humira is still producing strong growth numbers to this day. In fact, AbbVie's CEO is on record stating that Humira's sales will be around $21 billion by 2020. That alone is a strong reason to consider investing.
However, there's more to AbbVie's growth story than just Humira. The company also co-owns a fast-growing cancer drug, Imbruvica, with J&J that is projected to become a top seller by 2022. AbbVie is also launching Mavyret, a hepatitis C drug that might be able to muscle away some market share from Gilead Sciences' Epclusa.
There's also reason to believe that AbbVie's product portfolio will strengthen over time. Late-stage drugs include an endometriosis treatment called elagolix, a lung cancer drug called Rova-T, and a rheumatoid arthritis treatment called upadacitinib. All of these drugs hold blockbuster potential and, if approved, could go a long way toward counterbalancing AbbVie's dependence on Humira.
All in all, investors have plenty of reasons to believe that AbbVie's net income should continue to grow rapidly for years to come. That's why investors should expect great things from this dividend payer in 2018 and beyond.
Diabetes is a chronic condition that affects more than 422 million people worldwide, according to the World Health Organization. That's a staggeringly large number that, sadly, is only expected to grow over time.
Novo Nordisk has been selling diabetes treatments for decades and is still one of the industry's top dogs. However, the competition in the industry has been heating up recently, which is putting a lot of pressure on the company's legacy products. That forced Novo to give in on pricing in order to keep its market share, which has been a major headwind for profits.
That pricing pressure hasn't abated, but Novo is now rolling out new products to help it fight back. One huge winner for the company is Victoza, a GLP-1 agonist that has become the company's top-selling medicine. Novo has also had success with switching patients to its next-generation insulins such as Tresiba, Xultophy, Fiasp, and Ryzodeg, which helps to give the company more negotiating leverage with insurers.
Another reason to warm up to Novo is its recently approved drug Ozempic, a GLP agonist that has to be injected only once a week. That's a compelling advantage over other currently available treatments, which is why the drug could quickly become a top seller. Longer term, Novo is working on an oral GLP agonist which, if successful, could hold megablockbuster potential
All in all, Novo Nordisk has the products and pipeline to remain one of the best diabetes stocks out there for a long time. That makes it a great choice for income-seeking investors.
The Foolish bottom line
The world's population is getting older, so the demand for high-quality healthcare products should continue to climb for decades. With great products on the market and strong pipelines in place, I think that investors who buy today can bank on Johnson & Johnson, AbbVie, and Novo Nordisk sending them ever-growing dividend check for years to come.
Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences and Johnson & Johnson. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.