What will happen after the COVID-19 pandemic from an economic standpoint is anyone's guess. The oil and gas industry, airlines, cruise ships, sit-in restaurants, and even the financial services space are all facing an uphill battle at the moment.
Numerous household names may, in fact, vanish when everything is said and done. Put simply, this isn't the time to take on undue amounts of risk with your portfolio. What's more, investors would be wise to avoid trying to time the bottom by bargain hunting in this rather unpredictable market.
Which stocks are the best safe havens for investors in this rocky market? Blue chip pharmaceutical companies that pay a reliable dividend definitely qualify as a port in the storm, so to speak. Most of the top pharmaceutical companies should actually grow their top lines over the next 12 months -- not just hang on for dear life as the broader economy deals with the impacts of social distancing.
AbbVie: A dirt cheap Dividend Aristocrat
AbbVie is a Dividend Aristocrat, meaning that it belongs to a select group of companies that have increased their dividends for 25 consecutive years or more. The company didn't earn this honor by itself -- the Chicago-based biopharma was bestowed this highly coveted title through its parent company, Abbott Laboratories.
Even so, AbbVie has done an admirable job of rewarding loyal shareholders since becoming an independent company. AbbVie, in fact, has boosted its dividend by a whopping 195% since its debut in 2013. That's one of the fastest dividend growth rates within the large-cap pharmaceutical space over the last seven years.
Despite AbbVie's proven commitment to paying a top-notch dividend, investors haven't exactly flocked to this name as of late. Keeping with this theme, AbbVie's shares are trading at less than nine times projected earnings and are down by almost 18% at the time of this writing from their 52-week high. The net result is that AbbVie's dividend yield has ballooned to an eye-popping 5.62% at current levels.
The drugmaker's shares are trading at bargain-bin levels because investors are worried about the impact of biosimilar competition on the company's flagship arthritis medication Humira, combined with the upcoming merger with Botox-maker Allergan. This merger with Allergan will immediately dilute Humira's overall importance as a growth driver, but there are some significant drawbacks. Specifically, Allergan's medical-aesthetics franchise may take a big hit from the COVID-19 pandemic, and the combined company will sport a highly leveraged balance sheet.
The good news is that the revamped AbbVie should have no trouble paying off debt while continuing to service its dividend program. The core reason is that the company recently brought several new growth products to market, such as the soon-to-be-blockbuster immunology meds Rinvoq and Skyrizi. As such, there's a solid case to be made that AbbVie's main risk factors are being blown way out of proportion right now. Savvy investors, in turn, may want to take advantage of this fundamental disconnect while it still exists.
Pfizer: A top income-and-growth vehicle
Pfizer is one of the world's largest pharmaceutical companies in terms of both annual sales and market capitalization. The company's stock has long been a favorite among conservative-minded income investors, thanks to its top-notch yield of 4.12%, strong balance sheet, and enormous product portfolio.
Nonetheless, Pfizer's shares have still lost over 9% of their value this year and are currently trading near their two-year lows as a result. Investors have backed away from this pharmaceutical titan largely because of management's decision to spin off its lucrative generic-drug business. This strategic move is designed to tranform Pfizer into a "pure-bred biopharmaceutical driven by research and development," according to recent comments by the company's Senior VP of Investor Relations Charles Triano.
Investors, in turn, are arguably making a mountain out of a molehill. Pfizer has emerged as a top player in the high-growth field of oncology, yet this budding franchise has been overshadowed from a revenue-growth standpoint by a litany of patent expirations in recent years.
Driving this point home, Pfizer is calling for its top line to rise by no less than 6% per year for the next five years following this split. Therefore, this business separation should ultimately turn out to be a huge boon for current shareholders.
All told, Pfizer's stock is poised to become a top growth-and-income vehicle in the years ahead.