Inflation is a major worry for investors right now, and for good reason. In November, the consumer price index (CPI) skyrocketed by 6.8% year over year. That's the highest increase in the CPI in nearly four decades. Many investors, in turn, are currently on the hunt for vehicles that can safeguard their portfolios from inflationary pressures. 

While some investors are banking on cryptocurrencies or gold as hedges against inflation, dividend stocks shouldn't be overlooked. Stocks that pay out above-average dividend yields have historically performed exceedingly well during periods of high inflation. 

Which high-yield dividend stocks ought to be on investors' radars right now? Pharma titans Bristol Myers Squibb (BMY -0.68%) and Merck (MRK 0.09%) both offer above-average dividend yields relative to their peers. What's more, these two top healthcare stocks are trading at very attractive valuations right now. Here's why investors concerned about inflation might want to scoop up these two elite pharma stocks

Glass piggybank with plants inside that form the year 2022.

Image source: Getty Images.

Bristol: Better days are ahead

Bristol's stock has fallen out of fashion with growth-oriented investors this year. The core reason is the drugmaker is staring down seven major patent expirations this decade alone. Moreover, Mr. Market simply hasn't shown much interest in the company's clinical pipeline of late. This impatience, though, could turn out to be a major mistake.

Bristol, after all, sports one of the deepest and most diverse clinical pipelines in the industry. At last count, the biopharma had over 85 external collaborations in progress across fields as diverse as cardiovascular care, immunology, hematology, and neuroscience. 

What's more, Bristol has been hard at work applying cutting-edge tools such as gene editing, machine learning, and artificial intelligence to the construction and advancement of its plethora of pipeline candidates. These efforts ought to culminate in the approval of at least two new blockbuster drugs in 2022: the plaque psoriasis medication deucravacitinib and the heart disease treatment mavacamten.

The bottom line is that Bristol's pipeline should have more than enough firepower to overcome these upcoming patent expires for key medicines such as Revlimid, Eliquis, and Opdivo. That's why the drugmaker felt comfortable boosting its annual dividend by 10.2% and tacking on another $15 billion to its share repurchase program recently. 

With its shares trading at a paltry 2.45 times 2025 projected sales and its annualized dividend yield now at a healthy 3.6%, Bristol's stock definitely qualifies as a screaming buy -- especially for investors concerned about inflation. There aren't many high-yield dividend stocks trading at that kind of dirt cheap valuation, after all. 

Merck: A deeply undervalued income stock

Merck's shares are down by close to 11% year to date at the time of this writing. Like Bristol, Merck's stock has suffered this year, in part, because of overblown patent concerns for key drugs like the anti-cancer mega-blockbuster Keytruda.

The pharma giant's shares, though, have also been hurt by a general lack of enthusiasm for its recent business development activities. Back in September, Merck doled out $11.5 billion for Acceleron Pharma. By doing so, the drugmaker gained access to the experimental pulmonary arterial hypertension (PAH) drug sotatercept. The one hang-up with this deal is that sotatercept won't have a material impact on the drugmaker's top line until 2024 at the earliest. Although sotatercept is widely expected to become a foundational therapy for PAH, Wall Street isn't known for its patience when it comes to clinical-stage assets.  

The good news is that Merck probably landed its next flagship medication by acquiring Acceleron. The drugmaker should thus be set to move beyond Keytruda once this top-selling cancer medication goes off-patent toward the end of the decade. In the meantime, Merck is poised to generate considerable sales from its HPV vaccine franchise, its animal health unit, and its newly approved COVID-19 pill in 2022. In fact, the drugmaker's shares are presently trading at just three times 2022 projected sales. That's not exactly a premium valuation for a top dividend stock with an annualized yield of 3.76% at current levels.

So, if you're looking for a compelling mix of value and a steady stream of passive income to ward off inflation, Merck's stock should definitely be at the top of your list.