Dividend stocks can be a great source of passive income that can help smooth out losses during market downturns. Dividend-paying companies can also help negate (or decrease) the effects of inflation. The one thing better than a robust dividend stock, though, is a robust dividend stock that is trading at an attractive valuation. Let's look at two stocks income-seeking investors would do well to buy at current levels: Merck (MRK 0.37%) and Viatris (VTRS 0.87%).
1. Merck
Pharma giant Merck currently boasts an above-average dividend yield of 3.3% backed by a solid business. The drugmaker's lineup features blockbuster cancer drug Keytruda, a pair of HPV vaccines, and a growing animal health business. Keytruda has been approved for dozens of indications in the U.S. and elsewhere, and it continues to grow its sales at a good clip. In 2021, sales of the cancer medicine came in at $17.2 billion, 20% higher than the previous fiscal year.
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Keytruda is still earning new indications. Investors can expect this cancer therapy to continue contributing to Merck's top line. The company's HPV vaccines, Gardasil and Gardasil 9, performed well last year. Combined sales of these products came in at $5.7 billion, 44% higher than in 2020. Meanwhile, Merck is a prominent player in the animal health industry. According to the company's CEO, Rob Davis, Merck's animal health business "remains very well positioned to grow faster than the market well into the future."
Consider that in 2021, sales of Merck's animal health unit increased by 18% year over year to $5.6 billion.
By comparison, Zoetis, one of the largest animal health companies in the world, reported revenue of $7.8 billion last year, representing a year-over-year increase of 16%. Zoetis has a habit of growing its top line faster than the industry average. According to some estimates, the animal health market will expand at a compound annual rate of 10% through 2030. Merck should benefit from this long-term trend. Overall, Merck's revenue for 2021 was $48.7 billion, a 17% year-over-year increase.
The company's adjusted net income grew by 33% year over year to $15.3 billion. Merck's price-to-earnings (P/E) ratio of 11.1 currently stands below that of the pharmaceutical industry at 12.3. In my view, Merck's shares would be worth buying even at a slight premium considering the company's current lineup, pipeline, and record of success as a drugmaker.
Merck is a great pick for both value and dividend investors at current levels.
2. Viatris
Generic drug manufacturer Viatris was born when Pfizer spun off its off-patent drug business, Upjohn, which merged with the company formerly known as Mylan. This new entity began trading on the market in November 2020. Viatris boasts an impressive lineup of products, including many relatively well-known brands such as Lyrica, Xanax, Viagra, and Lipitor. While generic drugs typically don't benefit from patent protection, Viatris has the advantage of owning products that carry some amount of brand awareness.
Consumers tend to gravitate toward those products with which they are familiar. That's good news for Viatris' business. The company is, of course, working on launching newer medicines in addition to its approved portfolio of more than 1,400 products across many therapeutic areas. Roughly 75% of the company's pipeline is composed of complex generics and biosimilars.
These are typically harder to produce, and as a result, they face less competition on the market. The company has also been making a move toward higher-margin products by divesting some of its assets. Viatris' financial performance in 2021 wasn't impressive. For instance, the company's total sales decreased by 2% year over year on an operational basis to $4.3 billion.
Investors should expect some volatility as Viatris focuses on optimizing its business for the future. But the drugmaker is here for the long haul. With a juicy dividend yield of 4% and a forward P/E of just 3.2, Viatris is an attractive option for income-seeking investors.
