Investors looking for dividend-paying stocks that offer juicy yields right now can find what they're looking for in the biopharmaceutical industry.
All three of these big pharmaceutical companies have well-funded dividend programs that offer juicy yields above 4% right now.
|Company (Symbol)||Dividend Yield||Trailing Free Cash Flow|
|AbbVie (ABBV -2.10%)||4.5%||$15.3 billion|
|Gilead Sciences (GILD -0.64%)||4.4%||$8.2 billion|
|Pfizer (PFE 3.37%)||4.2%||$12.6 billion|
Let's look at where their profits are coming from to see if they deserve a place in your portfolio.
Since spinning off from Abbott in 2013, AbbVie has raised its dividend payout a whopping 225% with help from its top-selling rheumatoid arthritis treatment, Humira. Global sales of Humira peaked in 2018 at just under $20 billion, but competition from low-priced biosimilar versions outside of the U.S. put a temporary dent in the company's top line.
Despite biosimilar pressure for Humira abroad, the company has been able to offset the losses abroad with price increases in the U.S. that will push Humira sales past $20 billion this year. Thanks to contributions from AbbVie's enormous acquisition of Allergan earlier this year, the company relied on Humira for just 46% of total sales in the third quarter.
The coronavirus pandemic hasn't been kind to sales of Botox and other cosmetic products in 2020. There are at least three vaccine candidates that look likely to earn emergency use authorization from the FDA before the end of the year, meaning there might be light at the end of the tunnel. AbbVie shareholders can also look forward to skyrocketing sales of new treatments that launched in 2019. Sales of Skyrizi for psoriasis and Rinvoq for rheumatoid arthritis will pass a combined $2 billion this year.
2. Gilead Sciences
While Pfizer and AbbVie have enormous roots that go back generations, Gilead Sciences didn't begin producing profits for its shareholders until 2001. Since then, though, it's quickly become an industry giant with profits to share thanks to enormously successful antiviral treatments for HIV and hepatitis.
In addition to dividend payments that have grown 58% over the past five years, Gilead Sciences has been using profits from its antiviral treatments to expand its presence in the field of oncology. In 2017, the company spent $12 billion to acquire Kite Pharma and in 2019 brought in a new CEO, Daniel O'Day. As former CEO of Roche, he helped the Swiss pharma giant become an oncology powerhouse that produced $32 billion in cancer drug sales last year.
Gilead will report less than $1 billion in oncology drug sales in 2020, but this figure could explode in the years ahead. So far this year, O'Day has led Gilead into cancer-related collaboration deals and acquisitions with a combined value above $27 billion.
Those deals include the $21 billion acquisition of Immunomedics and its recently approved breast cancer treatment, Trodelvy. As an effective new treatment option for underserved breast cancer patients who don't respond to the most popular courses of treatment, annual sales of Trodelvy are expected to reach $4.7 billion at their peak.
America's largest pharmaceutical company was in a tough spot earlier this year. Its blockbuster nerve pain drug, Lyrica, lost patent-protected market exclusivity in the U.S. last June.
Despite losing Lyrica sales to deeply discounted generics, Pfizer investors can look forward to a burst of growth ahead. In November, Lyrica and the rest of the company's post-exclusivity brands merged with Mylan to form a new company called Viatris (VTRS 0.51%).
In 2019, the FDA expanded Xtandi's addressable patient population to include all prostate cancer patients with tumors that have spread regardless of whether they still respond to hormonal treatments. In the third quarter, U.S. sales of the prostate cancer drug surged 18%. It isn't Pfizer's only growth driver at the moment.
In 2019, the FDA approved Vyndaqel to treat patients with progressive heart damage caused by transthyretin-mediated amyloidosis. In the third quarter, soaring sales of Vyndamax already reached an annualized $1.4 billion.
In the numbers
Pfizer hasn't declared a dividend payment since the Viatris transaction, so its dividend details are up in the air at the moment. We do know that the transaction gave Pfizer a $12 billion cash windfall, and the company isn't shy about distributing extra cash to its shareholders.
Over the past year, AbbVie and Gilead used less than half of the free cash flow their operations generated to meet their dividend obligations. That gives them plenty of room to keep making annual payout bumps.
At recent prices, AbbVie and Gilead are trading at single-digit multiples of their forward earnings expectations. That means their stock can deliver market-beating gains over the long run with just a modest amount of growth that they're prepared to deliver.