Investing in sturdy dividend stocks is a fantastic way to diversify your portfolio and collect some extra cash. If you invest in companies with a historically robust (and growing) dividend and stable balance sheet, you could enjoy a stream of secondary income that can be used to buy additional shares, save, or put toward retirement.
Before you invest in these types of stocks, however, it's important to separate the dividend champions from the duds. Although biopharmaceutical leader Gilead Sciences (GILD +0.97%) only started paying a dividend in the last several years, it has consistently raised its payouts since that time. And over the last three years in particular, the company has grown its dividend by nearly 37%. Large-cap pharmaceutical company Bristol Myers Squibb (BMY 0.41%) started paying shareholders a dividend 40 years ago, and has raised its dividend by more than 90% over the past 20 years alone. Gilead is currently trading at about $66 per share while Bristol Myers' stock sits around $62. Regularly buying and holding some of these inexpensive shares could spell major gains in the long run. Here's what you need to know before you scoop up Bristol Myers and Gilead Sciences.
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1. Gilead Sciences
Gilead Sciences' dividend yields 4.13%, far higher than the S&P 500 average of 2%. Although the company's share price has fluctuated since the beginning of the year, the stock is still an affordable option for dividend investors willing to ride short term dips. Its forward P/E ratio sits just under 10, suggesting that the discounted stock has more growth ahead and is inexpensive at its going rate.
But don't get me wrong. A cheap stock price doesn't make a company a buy. Some investors have been on the fence about Gilead's prospects since the U.S. Food and Drug Administration (FDA) denied its new drug approval application. Gilead had hoped that its potential rheumatoid arthritis (RA) treatment, filgotinib, and its unique profile would provide RA patients better results than some of the bigger drugs on the market, which include Johnson & Johnson's Remicade, AbbVie's Humira, and Amgen's Enbrel. The market for RA treatments is a highly profitable space, expected to reach a value of more than $9 billion this year.
Another recent issue for Gilead has been mixed findings on the safety and effectiveness of remdesivir, also known by the brand name Veklury, which the company marketed as a treatment for patients with severe cases of COVID-19. An Aug. 28 expanded emergency use authorization (EUA) from the FDA has since quelled some worries. Phase 3 SIMPLE trials showed that remdesivir produced favorable results in hospitalized patients with moderate cases of COVID-19. Before this use expansion, Veklury was only authorized for severely ill individuals hospitalized with the disease. Now, the drug can be administered to any patient hospitalized with COVID-19. Considering that Gilead is already planning to produce millions of courses of Veklury at a price tag of up to $3,120 per treatment, the expansion could have an extremely favorable impact on the company's balance sheet.
Speaking of Gilead's balance sheet, the company managed to deliver strong financial results in first half of 2020, with just a 3% decline in total product sales. The company's product sales in the first six months of 2020 came to $10.5 billion, bolstered mostly by its HIV product segment, up 6% year over year to $8.1 billion. Gilead's large B-cell lymphoma treatment, Yescarta, also demonstrated 37% sales growth in the first six months, amassing $296 billion. Even though product sales in the U.S. and Europe were down in the first half of 2020, international product sales were up by 12%. It's been a year of ups and downs for Gilead Sciences, but that doesn't mean this cheap stock won't come out on top in the long term, as I believe it can.
2. Bristol Myers Squibb
Closing at around $62, Bristol Myers Squibb stock price has proven relatively resilient this year, declining by 3% since Jan. 1. The company consistently pays a dividend of just under 3%, and has increased its per share payments every year since 1999. Shares have risen 29% over the trailing 12 months, but Bristol Myers still looks undervalued, trading at just 11 times earnings.
The company's saw 82% revenue growth in the first quarter of 2020 and 61% growth in the second quarter that ended June 30. In Q2 2020, Bristol Myers reported a gross margin of 73.4%, with cash flow of $22.2 billion. The company's purchase of Celgene contributed significantly to Bristol Myers' success at the height of the pandemic, although the acquisition dented its bottom line. The fact that Bristol Myers' portfolio contains a variety of medicines in high demand during any market climate also boosted performance. For example, the chemotherapy drug Revlimid, which Bristol Myers gained through Celgene, hit $2.9 billion in sales in Q2 2020. The blockbuster cancer drug Opdivo amassed $1.7 billion in revenue during the second quarter, up 9% from Q2 2019.
On Aug. 11, Bristol Myers reported that a phase 3 trial studying Opdivo as an adjuvant treatment for patients with gastroesophageal junction or resected esophageal cancer achieved its primary endpoint. Opdivo is already approved to treat other diseases including non-small cell lung cancer, Hodgkin's lymphoma, and colorectal cancer.
The company has a pipeline with more than 50 compounds in development involving over 40 disease areas. Its robust portfolio and the strength of its balance sheet have revealed Bristol Myers' resilience in the face of six months of volatility. The combination of its cheap price, strong indicators for future growth, and consistent payouts make this dividend stock a compelling choice to buy and hold for the next decade and beyond.
