Amid the coronavirus-fueled market downturn -- and the economic troubles that have followed -- many companies have slashed or outright suspended their dividend payments, much to the dismay of income-seeking investors. However, some companies look poised to ride out the current market downturn with their dividends unscathed. Two such businesses are healthcare giants AbbVie (ABBV 0.89%) and Pfizer (PFE 1.00%). Here's why dividend investors should love both of these stocks.
The new AbbVie could be a cash-making machine
AbbVie currently sports a dividend yield of 4.8%, a dividend payout ratio of 77.5%, and a cash payout ratio of 48.3%. Furthermore, the company has raised its dividend by 131.4% over the past five years. Looking forward, this pharma giant looks likely to remain a top dividend stock. AbbVie markets Humira, the world's best-selling drug, which treats several autoimmune disorders such as rheumatoid arthritis. And although sales of Humira have been losing steam in international markets, it remains a blockbuster drug and will keep that title for a few more years.
To decrease its top-line exposure to Humira, though, AbbVie famously acquired Allergan in a cash-and-stock transaction valued at $63 billion that closed last month. AbbVie now has a rich and diversified lineup of products, including Botox, which generates billions in revenue every year. And it can count on other drugs such as Venclexta and Imbruvica, two cancer medicines whose sales are growing at a good clip.
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During the first quarter, the combined revenue of these two products increased by about 32.1% to $1.5 billion. Skyrizi is another promising product for AbbVie; revenue from this plaque psoriasis treatment -- which was approved last year by the U.S. Food and Drug Administration (FDA) -- totaled $300 million during the first quarter, a roughly 39% sequential increase.
Even with its strong lineup, there's one problem with AbbVie: The acquisition of Allergan significantly increased the company's debt level. However, management has pledged to take care of this problem as fast as possible. "The robust cash flow generation of the combined company will be used to rapidly pay down debt, support a strong and growing dividend and pursue additional innovative mid-to-late stage pipeline assets. We have committed to paying down $15 billion to $18 billion of combined company debt by the end of 2021, of which nearly $7 billion will [have been] repaid by the end of May 2020," said AbbVie's CFO Robert Michael.
AbbVie looks likely to continue rewarding its shareholders by way of dividend increases for many years, and income-seeking investors would do well to consider buying shares of the pharma giant.
Pfizer is down, but not yet out
Pfizer has performed worse than the broader market so far this year. The poor performance can be attributed to several factors, one of which was its first-quarter financial performance. During this quarter, Pfizer's revenue of $12 billion decreased by 7% compared with the year-ago period. The company also reported earnings per share (EPS) of $0.61, compared with $0.68 the year before.
Even given these unimpressive financial results, I think Pfizer has a lot to offer investors. First, note that many of the company's struggles during the first quarter came from its Upjohn unit, which houses its generic offerings. This business segment suffered a 37% operational decline. Why is this important? Pfizer is currently in the process of spinning off its Upjohn unit to Mylan (MYL). Pfizer wants to focus on its biopharma business, which has been performing well: During the first quarter, revenue from the biopharma segment increased by 12% to about $10 billion.
Pfizer expects the Upjohn spinoff to close in the second half of this year. The company's shareholders will then own a 57% share of the new company, dubbed Viatris. Once this deal is in the rearview mirror, Pfizer will become a more focused company, and the pharma giant will likely deliver healthy revenue and earnings growth. Pfizer boasts several drugs whose sales are growing at a good clip. For instance, there is Eliquis, an anticoagulant whose sales increased by 29% to $1.3 billion during the first quarter.
There is also cancer drug Ibrance, whose sales for the first quarter grew by 10% year over year to $1.2 billion, and Xtandi, another cancer drug whose sales were up by 25% year over year to $209 million. In addition, Pfizer has a robust pipeline with dozens of candidates that can replenish and strengthen its lineup of products. Lastly, the pharma giant is very willing to use its capital to reward shareholders by way of dividends.
During the company's first-quarter earnings conference call, in response to a question about Pfizer's capital allocation plans, the company's CFO, Frank D'Amelio, mentioned paying dividends as one of Pfizer's top priorities. The company currently offers a dividend yield of 4.1%, and its payout ratio and cash payout ratio are 51.3% and 70.1%, respectively. Pfizer looks like a strong dividend-paying stock to buy for income-seeking investors.
