Please ensure Javascript is enabled for purposes of website accessibility

3 Rock-Solid Healthcare Dividend Stocks Now on Sale

By Jim Halley – Nov 10, 2021 at 6:57AM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Now may be a good time to buy these healthcare dividend giants.

Pfizer (PFE -0.53%), Bristol Myers Squibb (BMY -2.08%), and Johnson & Johnson (JNJ 1.30%) are huge pharmaceutical companies that offer attractive dividends. Another thing they have in common is they may all be underpriced, making now a good time to buy their stocks.

Take a quick look at their forward price-to-earnings (P/E) ratios, which range from Johnson & Johnson's low 16.5 to the really low 11.2 for Pfizer and 7.9 for Bristol Myers Squibb. Compare those numbers to the pharmaceutical average of 34.05, and you can see why I think now may be a good time to go shopping.

An investor looks at a laptop; in the foreground is a graph showing a series of uncertainty bars.

Image source: Getty Images

Pfizer shines even if you overlook vaccine numbers

Pfizer stock has been stagnant of late; over the past three months, it's gone down a little more than 4.9%. That's not cause for alarm, but for celebration, as it provides a good entry point for an excellent stock with a recent history of dividend increases.

The company just released its third-quarter earnings and its numbers continue to be strong. Through the past nine months, Pfizer reported revenue of $57.6 billion, up 91% year over year. Obviously, a lot of that revenue this year -- $28.7 billion -- has come from its vaccines, and that's unlikely to last once COVID-19 cases diminish. However, even if you disregard vaccine revenue from both years, Pfizer's overall revenue was still up more than 11% compared to 2020.

That's because the company's stable of drugs continues to drive revenue. Not counting its $13 billion in revenue in the third quarter from Comirnaty, its COVID-19 vaccine, the biggest seller in the quarter was Ibrance with $1.4 billion in revenue. Close behind was Eliquis, which brought in $1.3 billion in the quarter, up 21% year over year. Pfizer reported $18.6 billion in net income over nine months, compared to $8.3 billion in the same period last year; adjusted diluted earnings per share over nine months was $3.35, up 82%. All the money Pfizer has made from its COVID-19 vaccine is helping fund research and development, and next year, the company said it could have as many as 10 new drug approvals.

Pfizer isn't a Dividend Aristocrat, but it has raised its dividend for 12 consecutive years. This year it raised its quarterly dividend by 3% to $0.39 a share, giving it a current yield of 3.3%. There's plenty of room for continued growth in the dividend, as its cash dividend payout ratio is only 33.7%.

At its current price, the stock appears to be a good deal, especially considering that its total return over the past 10 years is about 250%.

There's more than meets the eye in Bristol Myers Squibb

Bristol Myers Squibb's shares are down nearly 15% over the past three months, although over the past five years the company has grown revenue by 134% and its dividend by 25.64%.

In the third quarter, BMS reported revenue of $11.6 billion, up 10% year over year. While most of its revenue came from three drugs -- Revlimid, Eliquis, and Opdivo -- the company recently received good news for an expanded use of its drug Zeposia. The drug, already approved by the U.S. Food and Drug Administration (FDA) for multiple sclerosis and ulcerative colitis (UC), just cleared a key hurdle in Europe -- approval by the Committee for Medicinal Products for Human Use as a second-line treatment for UC.

Bristol Myers Squibb's quarterly dividend was raised 9% this year, the 13th consecutive year it's raised its dividend, to $0.49 per share. As of this writing, its dividend yield is 3.3%. There's plenty of room for continued growth there, too, as its cash dividend payout ratio is about 30.64%.

On top of that, the company has more than 50 drugs in development. So when its big three lose patent protection, there's likely to be replacement drugs that will help its revenue.

Johnson & Johnson is the definition of "reliable"

Johnson & Johnson stock is down more than 6% the past three months. That doesn't mean its revenue is down -- quite the contrary, according to its third-quarter report. Over nine months, the company reported revenue of $68.9 billion, up 14.7% year over year; its earnings per share were $6.04, up 24.3% over the same period in 2020.

Johnson & Johnson's pharmaceutical segment is still its biggest earner with nine-month revenue of $37.7 billion, up 13.5% year over year. But the segment that has had the strongest growth is medical devices, with nine-month revenue of $20.2 billion, up 23.4%.

Johnson & Johnson is a Dividend King, with 59 consecutive years of dividend increases. This year, it increased its dividend by 5% to $1.06 per quarterly share; its current yield is 2.52%. Over the past 10 years, the company has increased its dividend by 11.5%. It does have the highest cash dividend payout ratio of the three stocks, at 45.35%, but that's still easily covered by its cash flow.

Johnson & Johnson is really more than a pharmaceutical company because it is also a medical equipment maker and a maker of consumer products. That built-in diversification, along with its size (a $433 billion market cap and more than 130,000 employees), allows it to ride economic cycles with little difficulty. That stability begets itself as it attracts long-term investors who stay with the stock.

The company's debt-to-equity level is 0.80 and over the past 10 years, it has decreased that level by 27.19%. Over the past decade, the company's stock has offered an annual total return level of 12.99%, so an investment of $1,000 on Nov. 5, 2011, would now be worth almost $3,386, counting reinvested dividends.

Jim Halley owns shares of Johnson & Johnson and Pfizer. The Motley Fool owns shares of and recommends Bristol Myers Squibb. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.