If you've been hunting for dividend-paying pharma stocks that have what it takes to keep raising their payouts for the foreseeable future, you have at least three great options to choose from at the moment.

These might not be the industry's highest payouts at the moment, but new drug launches and successful label expansions could help all three push up their dividends faster than their peers. 

Company (Symbol) Dividend Yield Payout Ratio
Pfizer (PFE -2.01%) 4% 63.3%
Merck & Co. (MRK -2.63%) 2.6% 58.3%
Eli Lilly (LLY 0.05%) 2.4% 30.4%

Data source: Yahoo! Finance.

Which is best for an income-generating portfolio? Here's what investors need to know.

Person writing the word dividends with their finger.

Image source: Getty Images.

1. Pfizer: Passing on the megamerger crown 

This is Albert Bourla's first year as Pfizer's CEO and he's delivered on a promise to streamline America's largest pharmaceutical company. Over the summer, the company's consumer goods segment became part of a joint venture with GlaxoSmithKline's over-the-counter brands. More recently, Mylan agreed to merge with Pfizer's off-patent segment, Upjohn.

Pfizer peers AbbVie and Bristol-Myers Squibb are trying to grow through giant deals, but the company that wrote the pharma industry's megamerger playbook is being a lot more careful with its massive cash flows. The recent $11 billion acquisition of Array Biopharma is probably the largest purchase we'll see from Pfizer for the foreseeable future. 

Sales of Array's targeted therapies Braftovi plus Mektovi were languishing as a treatment for a limited population of advanced-stage melanoma patients with tumors that express a specific gene mutation. Pfizer ponied up for Array because the combination will probably soon earn approval for the treatment of a much larger population of people with colon cancer. During the Beacon study, adding Pfizer's new combination treatment to Erbitux reduced patients' risk of death by 48% compared to standard care.

Pfizer generated a whopping $11.8 billion in free cash flow over the past year and used just 68% of those profits to make dividend payments. That's getting close to the danger zone, but Pfizer should be able to raise the payout in line with earnings growth in the years to come.

2. Merck & Co.: A new No. 1

A recent forecast from GlobalData predicted that Merck's PD-1 inhibitor Keytruda will become the world's top-selling drug in 2025. This is possible because, in addition to an enormous population of new lung cancer patients, Merck has convinced the FDA to approve Keytruda to treat cancer that originates in over a dozen other places. 

After five years and more than a dozen label extensions, you might think Keytruda has reached the end of its growth story, but we're just entering the second act. Keytruda is currently being tested in over 1,000 clinical trials and the vast majority are sponsored by companies that want to combine their candidates with Merck's blockbuster.

Merck's also pushing hard to make its portion of Lynparza sales grow at a hair-raising pace. A phase 3 study tested Avastin and Lynparza as a maintenance treatment to prevent ovarian cancer patients in remission for the first time from relapsing. Adding Lynparza to the standard treatment reduced patients' risk of disease progression by 41% compared to those given Avastin on its own. 

Merck's operations generated $7.8 billion in free cash flow over the past year, and this figure could reach 11 digits soon. Keytruda sales are currently running at an annualized $10.4 billion, which is expected to reach $22.5 billion by 2025. Merck's yield at recent prices isn't exactly thrilling, but Keytruda's growth will probably allow the company to raise the payout at a hair-raising pace.

A woman in a lab coat wearing gloves and a face mask, looks through a microscope in a lab.

Image source: Getty Images.

3. Eli Lilly: Buying growth

Eli Lilly began 2019 with the purchase of Loxo Oncology mainly to get its hands on selpercatinib, formerly LOXO-292, a highly targeted treatment aimed at patients with tumors that harbor rearranged during transfection (RET) mutations. Lilly's chances of earning a big return on its $8 billion Loxo investment look pretty good. That's because a significant portion of lung cancer patients carry RET-positive tumors.

In September, Lilly presented results from the ongoing Libretto trial with relapsed lung cancer patients and some treatment-naive patients. Selpercatinib shrank tumors for a whopping 85% of first-timers and a stunning 68% of relapsed patients. Lung cancer tends to spread to the central nervous system, where it's even harder to treat. Among patients with brain metastases, selpercatinib shrank tumors 91% of the time. 

Lilly will send the FDA a new drug application for selpercatinib by the end of the year, but it doesn't need new drug launches to grow right now. The company has launched eight drugs since 2014 that already generate around $10 billion annually, and Lilly's ninth new drug in five years could have legs as well.

The FDA recently approved Reyvow, formerly lasmiditan, making it the first new acute treatment for migraine headache symptoms since the 1990s. Earlier this year, Lilly launched a monthly migraine-preventing injection called Emgality. Many of the same people will probably purchase Reyvow for emergencies.

Lilly shares offer a fairly meager dividend yield at the moment, but its growing new product lineup will allow the company to make some big payout bumps down the road.

Hang on tight

The ongoing loss of Lyrica revenue to generic competition will sting Pfizer in 2019, and into the beginning of 2020. In a couple of years, though, this company's top and bottom lines will begin moving steadily in the right direction.

Among these three, Pfizer might deliver the most dividend income in the years ahead. Shares of Pfizer might bounce around a lot in the beginning, but those juicy dividends will make hanging on for the long term much easier.