One good thing about this bear market is that it's giving you opportunities to buy stocks at lower prices than they've been trading at in years. And if you're picking dividend-paying stocks, that generally will mean their yields will be much higher than normal, too.
For example, Sanofi (SNY 0.91%) and Intel (INTC 0.16%) are not only trading near multi-year lows, they're yielding more than 4%. Let's consider what's behind their recent share price declines and weigh the question of whether or not you should buy these stocks today.
1. Sanofi
French pharmaceutical company Sanofi makes a variety of medicines focused on therapeutic areas such as oncology, neurology, and immunology, as well as several rare diseases and rare blood disorders. In addition, it sells consumer health products and makes vaccines. The company's diversification is a source of strength, and could potentially make this an appealing long-term investment.
However, a raft of lawsuits relating to Zantac, the heartburn medication which Sanofi used to sell, have driven the stock down of late. In early 2020, the Food and Drug Administration (FDA) ordered Zantac to be pulled from the market after it was discovered that potentially carcinogenic risks may exist. As a result, Sanofi faces close to 3,000 lawsuits as well as various class-action suits.
On Aug. 11, Sanofi released a media update regarding the Zantac litigation that management may have hoped would help. However, the press release didn't have that effect. Sanofi's stock price has continued to fall, and it's now back near the level it briefly dropped to during the March 2020 market crash.
All of this litigation does leave Sanofi at risk of significant financial consequences -- and investors need to take those into account -- but how much risk exists can be difficult to predict. Further, such legal battles can drag out for years.
On the positive side, Sanofi's business remains robust. Through the first half of 2022, sales increased by 8% year over year (excluding the impact of foreign currency changes) to 19.8 billion euros.
Top-selling dermatitis treatment Dupixent is a key asset for the company, generating 3.6 billion euros over the past two quarters and growing sales by 44% on a constant-currency basis. The company developed the treatment with Regeneron Pharmaceuticals, and in June, the FDA approved Dupixent for a new indication -- treating moderate-to-severe atopic dermatitis in children between the ages of 6 months and 5 years old. It's also approved for asthma in children, among other indications.
And the companies are still working to expand Dupixent's acceptable uses even further. In total, Sanofi projects the drug's annual sales will peak at a whopping 13 billion euros. Still, Dupixent only accounts for 18% of Sanofi's revenue thus far in 2022. The pharmaceutical company's wide catalog of treatments makes it a fairly safe stock to own for the long haul.
The stock's valuation and dividend are also attractive. The average healthcare stock trades at a price-to-earnings ratio of 20 right now, but Sanofi trades at a multiple of just 15. An added incentive to buy the stock is that its dividend yields 4.5% -- more than twice the S&P 500's average yield of 1.8%.
Again, the litigation risks remain -- and they are hard to measure -- but for contrarian investors willing to take on that risk, Sanofi could make for a good pick up right now.
2. Intel
Chipmaker Intel is a top name in tech and has been for years. Its microprocessors are found in vast numbers of computers and devices. Half of its revenue still comes from its client computing segment and the processors that it builds for personal computers. But that part of the business is struggling. Through the first two quarters of its fiscal 2022, that segment's sales totaled just under $17 billion, down from almost $21 billion in the same period last year.
Amid the global chip shortage, Intel and other chipmakers are playing catch up in an effort to boost production and meet demand. Intel has been investing in increasing capacity. Earlier this year, it announced plans to spend $36 billion on new facilities to make chips in Europe. Despite the growth opportunity here, investors are skeptical about the costs for the business, as this isn't a cheap venture. And in recent quarters, Intel's free cash flow has slipped.
INTC Free Cash Flow (Quarterly) data by YCharts
The danger for investors here is that if Intel gets too aggressive with spending, it may impact profitability. And the company may need to cut or eliminate its dividend to free up cash. That means its payout, which currently yields a lucrative 5.7%, may be at risk. Based on its payout ratio of just 30%, the dividend looks safe, but if the company needs to free up cash, management could still decide to adjust the payout.
Plenty of investors are bearish about the company's future, which is why the stock is now down to levels it hasn't been at since 2014. Between rising competition from rival Advanced Micro Devices and the hefty capital expenditures it has planned to grow its chipmaking capacities, Intel faces an uncertain future.
For the time being, the dividend still looks safe, but investors need to tread carefully -- Intel could prove to be a high-risk stock. Unless you're comfortable with taking those risks in pursuit of potential high rewards, you may be better off looking at other dividend stocks.
