Johnson & Johnson (NYSE:JNJ) and Pfizer (NYSE:PFE) rank as the biggest of big pharma companies in the United States. Both companies trace their roots back to the 19th century. Both generate enormous amounts of cash flow and pay solid dividends.
Over the past 12 months, Pfizer has been the clear winner between these two blue-chip pharma stocks. But which is the better pick for investors now? Here's how J&J and Pfizer compare.
The case for Johnson & Johnson
Johnson & Johnson's solid Q2 performance highlights several reasons to like the stock. First, the company is diversified into several areas of healthcare. J&J isn't just a big pharma company. It also ranks as a leader in consumer healthcare and medical devices. These two segments combined generate more revenue for J&J than its pharmaceuticals business does.
Another thing Johnson & Johnson's second-quarter results show is the company's ability to make acquisitions that move the needle. For example, last year's acquisition of Swiss drugmaker Actelion contributed an additional $665 million in revenue in Q2 that J&J wouldn't have had otherwise.
But Johnson & Johnson also claims several blockbuster drugs that continue to enjoy strong momentum. Immunology drugs Stelara and Simponi are big winners for the company and are more than offsetting declines for Remicade, which faces competition from biosimilars. J&J's Invega neuroscience franchise is also performing well. The company is exceptionally strong in oncology, with soaring sales for Darzalex, Imbruvica, and Zytiga.
What about Johnson & Johnson's pipeline? The company claims more than 40 late-stage programs. J&J awaits European approval of Erleada, a promising prostate cancer drug that won FDA approval earlier this year. It expects to submit several more oncology drugs for approval over the next three years, including niraparib for treating prostate cancer and CAR-T therapy JNJ-4528 for treating multiple myeloma.
J&J's dividend is another big plus for the stock. Its yield currently stands at 2.86%. The company has increased its quarterly dividend for 56 consecutive years.
The case for Pfizer
Pfizer isn't as diversified as J&J and could become even less so as it contemplates the possibility of spinning off its consumer health business. However, there's a lot to like about Pfizer's core pharmaceuticals business.
The drugmaker claims three tremendously successful drugs that should continue to generate growth well into the future. Market research firm EvaluatePharma thinks that Eliquis, which Pfizer co-markets with Bristol-Myers Squibb, will be the No. 5 best-selling drug in the world within a few years. Breast cancer drug Ibrance and immunology drug Xeljanz also enjoy strong sales momentum.
We could soon add more drugs to this list. Pfizer and partner Merck won FDA approval for Steglatro, Steglujan, and Segluromet in treating type 2 diabetes in December 2017. These drugs could together be another blockbuster franchise for Pfizer.
Pfizer's pipeline also includes over 30 programs in late-stage development or awaiting approval. Three oncology drugs that look especially promising are dacomitinib, lorlatinib, and talazoparib. Pfizer also hopes to step up its rare-disease game, with tafamidis meglumine awaiting FDA approval as a treatment for transthyretin familial amyloid polyneuropathy and sickle cell disease candidate rivipansel in phase 3 testing.
You won't find many big pharma dividends better than Pfizer's. Its dividend currently yields 3.66%. Over the past five years, Pfizer has increased its dividend by nearly 42% -- higher than J&J's dividend increases of 36% during the period.
Both Johnson & Johnson and Pfizer face some challenges. Without its acquisitions and help from currency fluctuations, J&J's revenue growth has been modest. Pfizer continues to be held back by declining sales for drugs that have lost exclusivity and continued product shortages with its sterile injectables business.
However, I like both of these stocks despite the headwinds they face. Over the long run, my view is that both J&J and Pfizer will deliver solid total returns to investors.
Which is the better pick right now? I think the nod goes to Pfizer -- mainly because of the company's higher dividend yield. My hunch is that both companies will generate earnings growth at similar levels over the next few years. But Pfizer's better dividend should allow the stock to produce greater total returns than J&J will.
It's a close call, though. I don't think long-term investors can go wrong with buying either of these stocks.