Owning the right high-yield dividend stocks can help investors sleep easier at night amid a volatile market like the one we're in right now. As long as passive income remains steady, investors won't have to sell off their core investment holdings to pay their bills.
Swiss drugmaker Novartis (NVS -1.64%), could be an ideal fit within an income investor's portfolio. Let's take a look at Novartis' fundamentals to better understand why it could be a part of an income investor's portfolio. And let's also check out the valuation to answer whether the stock is currently a buy.
A strong, commercialized drug portfolio
Novartis' products reach almost 800 million people each year around the world. (That includes Sandoz, the company's consumer health division which will be spun off.) With this staggering statistic in mind, it's no wonder Novartis' $197 billion market capitalization positions it as the seventh-largest pharmaceutical company on the planet.
Novartis recorded $12.5 billion in net sales in the third quarter ended Sept. 30, which was down 3.7% year over year. But because the company has extensive operations throughout the world and reports its net sales in U.S. dollars, this doesn't tell the full story. Accounting for the headwind of an exceptionally robust U.S. dollar, Novartis' net sales were actually 4% higher over the year-ago period.
The company has one of the most balanced commercialized drug portfolios among its peers. This includes 14 drugs that are on track to be blockbusters in 2022 (i.e., at least $1 billion in net sales). Its two top-sellers -- immunology drug Cosentyx and heart failure drug Entresto -- saw double-digit growth. Increased volume led the two drugs' net sales higher during the quarter.
The company's non-GAAP (core) earnings per share (EPS) fell 7.6% year over year to $1.58 in the third quarter. But again, factoring out unfavorable foreign currency translation, core EPS actually edged 1% higher during the quarter. This was largely the result of share repurchases executed over the past year, which increased the slice of profits to which each shareholder is entitled.
Analysts anticipate that the company will generate 3.6% annual core EPS growth over the next five years as it brings some of the nearly 150 indications in its pipeline to market. The portfolio includes a variety of therapeutic areas. Should the U.S. dollar weaken, that would help earnings as well.
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A safe and market-crushing dividend
Stacked against the S&P 500 index's 1.7% dividend yield, Novartis' 4% yield is a standout for income-minded investors. It appears to be one that investors can rely on, too, since it is backed by a solid drug lineup that should lead to growing earnings.
The company's dividend is also well-covered with a payout ratio that is expected to come in at just 52% over the next 12 months. For context, this means Novartis will be able to hang on to roughly half of its profits to use potentially for future acquisitions, debt repayment, and share buybacks.
The valuation is somewhat cheap
Novartis' forward price-to-earnings ratio of 13.8 is about the same as the S&P 500 pharmaceutical industry average. A world-class business like Novartis should arguably be priced at a slight premium to its peers, which is what makes the stock a compelling pick for income investors. Novartis is a promising business, and its current $83 share price looks like an opportunity for investors.
