The pharmaceutical industry is one of the steadiest in the world (even with the risks of patent expirations that come with it). After all, millions of patients around the world rely on the industry and its essential medicines.
New York-based Bristol-Myers Squibb (BMY -0.87%) is among the largest pharmaceutical companies in the world. And its stock is a no-brainer buy for investors seeking reliable dividend income. Here are four reasons why.
1. Bristol-Myers Squibb's product portfolio is strong
Bristol-Myers' $151 billion market capitalization positions it as the eighth-biggest drugmaker on the planet. As you would expect from a company of its size, the pharmaceutical company possesses a strong portfolio of prescription-based and non-prescription medicines.
Bristol-Myers' portfolio included three mega-blockbusters (defined as at least $5 billion in annual sales) in 2022. These are the oncology drugs Opdivo and Revlimid and the blood thinner franchise shared with Pfizer known as Eliquis. The company also had four other blockbuster drugs (at least $1 billion in annual sales) in its drug portfolio in 2022.
Bristol-Myers recorded $11.4 billion in revenue in the fourth quarter, which was down 4.8% over the year-ago period. But this top-line decline doesn't offer a complete picture of the company's results in the quarter.
With extensive international operations and a robust U.S. dollar in recent months, Bristol-Myers faced a 4% foreign-currency exchange headwind. Factoring this into results, revenue was down around 1% during the quarter.
Except for a double-digit year-over-year drop in Revlimid revenue, all the company's mega-blockbuster and blockbuster drugs produced growth for the fourth quarter. There was also healthy growth in its new product portfolio of drugs like the oncology drug dubbed Breyanzi and the anemia therapy called Reblozyl. Taken together, it all explains the steady revenue in the quarter.
In Q4 Bristol-Myers' non-GAAP (adjusted) diluted earnings per share (EPS) fell 1.1% over the year-ago period to $1.82. The company's non-GAAP net margin dipped by 30 basis points year over year to 34% for the quarter. Bristol-Myers' lower revenue and profitability were partially offset by a 4.3% reduction in its weighted average diluted share count. This explains how the company's adjusted diluted EPS decreased at a slower rate than revenue in the quarter.
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2. Bristol-Myers has a stacked drug pipeline
Bristol-Myers currently has more than 50 compounds in clinical development. This is why the company anticipates that it will be able to generate more than $25 billion in sales from its new product portfolio by 2030. That should be more than enough to offset the increased competition that its top-selling three drugs ($30 billion in 2022 revenue) will face moving forward. This is why analysts believe that Bristol-Myers' adjusted diluted EPS will grow by 3.8% annually over the next five years.
3. The above-average dividend is growing
Income investors will appreciate Bristol-Myers' 3.2% dividend yield, especially considering that this is nearly twice as high as the S&P 500 index's 1.7% yield. And the payout appears to be quite safe as well.
This is because Bristol-Myers' dividend payout ratio is expected to come in at around 28% in 2023. That leaves the company with more than enough capital to complete acquisitions to further strengthen its fundamentals, reduce debt, and execute share repurchases. And it's why Bristol-Myers should be able to keep delivering mid- to high-single-digit dividend hikes to shareholders over the next few years.
4. Bristol-Myers is a significantly discounted stock
As the broader market has tumbled over the last year, Bristol-Myers' stock has gained 5%. But because the stock began the year-ago period so criminally cheap, its shares arguably remain a convincing buy at this time.
Bristol-Myers' forward price-to-earnings (P/E) ratio of 8.7 is well under the drug manufacturers' forward P/E ratio of 13.3. For income and value investors alike, now would be a good time to buy the stock before Bristol-Myers proves that it is able to overcome looming patent expirations on its major products.
