Getting a long-lived income stream from a company's dividends is pretty sweet, especially if you're buying shares at a deep discount. Of course, that's easier said than done as few businesses that are financially healthy enough to pay a dividend are going to be purchasable at fire-sale prices.
But it's entirely possible to grab a few shares when companies are priced less expensively than usual. Here are two stocks that you should probably consider buying now while they're on the cheaper side.
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1. Viatris
With its shares down by 18.5% in the last year, Viatris (VTRS 1.17%) is a generic pharmaceutical manufacturer that dividend-loving investors shouldn't count out just yet. Its business model is to produce generic versions of medications in high demand, like the top-grossing cholesterol-lowering drug Lipitor, with the aim of manufacturing and selling them at a lower cost and higher volume than the branded alternatives.
As demand for these critical medicines won't change much over the medium term, it recoups the cost of spinning up its production lines over the course of many years, passing the proceeds on to its shareholders. At the moment, its forward dividend yield is 4.1%.
Viatris' stock is down because in 2022, it handed off its biosimilar medicine portfolio to a smaller company called Biocon Biologics in exchange for $2 billion in cash up front and a 12.9% stake, not to mention up to $335 million in payments in 2024. Considering that biosimilars were slated to bring in $875 million in revenue for 2022, the transaction will likely negatively affect Viatris' top line for the year, and possibly beyond.
But it should also streamline the company's operations to improve its profitability, and the cash infusion is likely to be spent on developing more generics for future growth. So it doesn't detract from the long-term investing thesis, nor should it dissuade investors from buying the stock while it's cheap.
Compared to the pharmaceutical industry's average price-to-sales (P/S) ratio of 4.1 and price-to-book (P/B) multiple of 5.9, Viatris' P/S of 0.8 and P/B of 0.7 are much lower. In fact, the valuation is so low that its trailing 12-month revenue of $16.7 billion is higher than its market capitalization of $14.1 billion. Plus, the book value of its shares is lower than what the business' assets would be worth in liquidation.
At the same time, the stock's low valuation will likely expand by a lot if there's a bull market. It'll likely expand by a bit even if there isn't as more revenue will be coming online over the coming years. That's another solid pair of reasons to buy it.
2. Pfizer
Pfizer (PFE 2.40%) is a business that needs no introduction, and it's easy to see why some investors might be surprised that it's trading at a discount. The stock is down by 9% in the last 12 months, and the less-than-bullish anticipated future sales of its multi-billion-dollar coronavirus products are why.
The pandemic isn't yet fully over, but most people in the U.S. are vaccinated, many with Pfizer's Comirnaty jab. And demand for its antiviral pill Paxlovid isn't going to keep rising, now that cases are persistently lower than they were a couple of years ago. In 2022, Pfizer brought in $18.9 billion from Paxlovid sales, and $37.8 billion from Comirnaty, helping to give it a top line of more than $100.3 billion in total with the addition of its other medicines. Management expects demand for both products to crash in 2023 and beyond, with the company's total revenue to follow, potentially falling as low as $67 billion for 2023.
But declining demand for two medicines doesn't mean much for any of the other drugs in Pfizer's portfolio, and the company is predicting as much as 9% top-line growth when the coronavirus products are excluded. In the long term, Pfizer's investing thesis is as strong as ever, as it'll continue to successfully commercialize and profitably sell medicines that the world needs. When viewed from that lens, its P/S multiple of 2.4 looks like a steal relative to the rest of the pharma industry. Its forward dividend yield of 3.8% isn't too shabby either.
