Equity markets have been volatile thus far in 2022.

For various reasons, including red-hot inflation, supply chain woes, and investors' fears of a potential recession, the S&P 500 index is now down nearly 11% year to date. Not surprisingly, this has led many traders to shift assets into stocks that are viewed as safe havens -- among them, well-established dividend-paying stocks.

This, in part, explains why pharma company Novartis (NVS 1.15%) has done so well. Its shares are up 1.5% year to date. Despite this recent outperformance, I believe Novartis is still a buy based on its fundamentals and valuation.

A strong commercialized drug portfolio

The Swiss drugmaker produced another great year of operating results in 2021. Novartis reported $51.6 billion in net sales, for a growth of 6.1%.

How did this mega-cap generate such solid growth? The answer lies within its drug portfolio, which is packed with 14 blockbusters -- treatments that deliver at least $1 billion in revenue every year. Of those 14 blockbuster drugs, sales of 10 grew at percentage rates in the mid-single to the mid-double digits in 2021.

Novartis' top two sellers each played important roles in lifting its total net sales. Net sales of heart failure treatment Entresto rose 42.1% to $3.5 billion in 2021, accounting for 35.4% of Novartis' total net sales growth.

In addition, net sales for immunology drug Cosentyx grew 18.1%, generating $4.7 billion. The drug contributed to 24.4% of Novartis' total net sales growth.

In short, Entresto and Cosentyx contributed nearly 60% of the pharmaceutical's total revenue growth.

Novartis's core earnings per share (EPS) grew by 8.8% to $6.29 in 2021. Beyond the company's higher net sales, its earnings growth was driven by a couple of other factors.

First, its net margin improved by 30 basis points to 27.3% in 2021. Second, the company lowered its outstanding share count by repurchasing $2.8 billion worth of its stock.

A doctor and patient speak during an appointment.

Image source: Getty Images.

The pipeline should sustain growth

Novartis boasts a pipeline of over 150 projects in different phases of clinical development. As patents on its existing drugs expire, its new products should more than offset the inevitable sales declines caused by the arrival of generic competition and keep the company growing.

With 62 of these projects in either phase 3 or under registration, it's little surprise analysts predict Novartis to deliver 5% annualized earnings growth over the next five years.

A safe and market-crushing payout

Novartis possesses a deep commercialized drug portfolio and a broad drug pipeline. The stock's dividend payout ratio is expected to be 52.5% in 2022, so its payout, which at current share prices offers a market-beating yield of 3.7%, looks entirely sustainable.

Novartis has a reasonable cushion to keep paying dividends at their current levels even if its profits temporarily slip. And the company also has the capital necessary to repay debts, complete acquisitions, and repurchase shares, all of which should propel its core EPS higher over time.

The stock is reasonably valued

Novartis is a fundamentally healthy business. And in an environment where the S&P 500 yields a meager 1.4%, the stock looks capable of providing income investors with steady cash flow. 

And to top it all off, Novartis looks reasonably priced. At the current share price, it trades at a forward price-to-earnings ratio of about 14.5. This is moderately lower than the S&P 500 healthcare sector average of 16.7. And Novartis' trailing-12-month price-to-free-cash-flow ratio of 17.1 is just below its 10-year median of 17.3. This is why Novartis is an interesting income stock to buy now and hold forever.