Big pharma stocks aren't exactly the traditional choice for making millions. With stratospheric market caps and a plodding pace of expansion, it's easy to see why many growth investors eschew them for smaller, nimbler biotechs that have the potential to multiply in value overnight.
Still, biotechs almost never have the stable cash flows necessary to pay a dividend, and that means they're likely to spend a whole lot of time sitting in a portfolio, not doing much of anything.
Both of the healthcare stocks I'll discuss pay a dividend that's higher than the market's average yield of 1.27%, but their real advantage is that they make medicines that patients and healthcare systems are going to need more or less forever. They probably won't outperform the market every year, but using the income from their dividend could pad your wallet again and again over the years, and getting paid is key to making a fortune.
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1. Grifols
Grifols (GRFS -1.39%) makes plasma-derived medicines that are necessary for a variety of hospital procedures ranging from cardiopulmonary bypasses to rehydration, generating trailing revenue of $5.2 billion in the process. Because the easiest way to manufacture these medicines is to extract them from human plasma, it also operates 370 donation centers globally.
Though the company faced difficulty in finding plasma donors in the early part of the pandemic, things are now normalizing rapidly, and that means new investors are positioned to benefit from the coming months and years.
In that vein, one of the stock's biggest appeals is its forward dividend yield of 7.69%, which is quite large. What's more, its dividend has grown by 180.1% in the last five years, and there's likely more to come. The payout won't make anyone rich anytime soon, but if Grifols is kept in a portfolio for years, investors will definitely get richer.
Moving forward, Grifols expects to benefit from an increasing volume of plasma donors, which will drive down the costs of compensating people who choose to donate. At the same time, management predicts that demand for plasma proteins will continue to rise, buoying the fair market price of its products. That's sure to put downward pressure on its cost of goods sold (COGS), which accounts for just over 57% of its quarterly revenue, thereby boosting its profit margin too.
2. Bristol Myers Squibb
As a traditional large pharma company, Bristol Myers Squibb (BMY -0.27%) develops and commercializes drugs for cancers, immunological disorders, and even hereditary conditions. Its massive pipeline has dozens of late-stage projects advancing toward regulatory submissions, and it could have as many as seven new regulatory approvals in 2022 alone, with far more to come throughout the decade.
The catch with this company is that management is anticipating that revenue will drop by at least $12 billion during the early 2020s as a result of some of its biggest-earning drugs losing their exclusivity. Of course, that revenue will (hopefully) be replaced by other medicines getting approved and starting to yield revenue before the second half of the decade, but the transition period might be rocky -- and that's why this stock could help make investors a fortune.
From 2022 through 2024, management predicts that it'll have free cash flow (FCF) of up to $50 billion. With that cash, Bristol Myers will be making acquisitions, hiking its dividend, and performing share repurchases, all of which will reward investors who were brave enough to stick around during the transitionary period.
Right now, its forward dividend yield is 3.37%. If the pharma continues to raise its dividend every year at the same pace as the last three years, it'll grow by more than 31% before 2026, even as its revenue mix changes. And, with the boost from its staccato of new drug approvals, shareholders are likely to be sitting pretty by 2030.
