As 2022 and 2023 have proven, every bubble must eventually burst. As interest rates have soared and easy money has dried up, cryptocurrencies and the share prices of speculative, unprofitable businesses have been hammered.
This is what makes it so important for investors to insist upon owning reliable companies. The Dow Jones Industrial Average consists of 30 such businesses. That's how a $10,000 investment made into the index 10 years ago would now be worth over $28,000 with dividends reinvested.
But there are plenty of other publicly traded businesses that have proven to be even better investments over the long haul. And it doesn't get much better than pharmaceutical giant Eli Lilly (LLY 1.81%). A $10,000 investment made 10 years ago, with dividends reinvested along the way, would now be worth $76,000.
Better yet, that strong performance appears poised to continue. Here's why.
NYSE: LLY
Key Data Points
Its drug portfolio and pipeline could fuel huge growth
Eli Lilly's $316 billion market capitalization positions it as the second-largest drugmaker on the planet behind Johnson & Johnson, with a $400 billion market cap. Unsurprisingly, the company's status as a leading pharmaceutical company is supported by an exceptionally strong portfolio of products.
For one, the portfolio of the Indiana-based business contained the mega-blockbuster type 2 diabetes medicine Trulicity with $5 billion or more in annual revenue. The efficacy of the drug as a diabetes treatment spurred gains in market share, which drove its total revenue up by 15% to $7.4 billion in 2022. The company's portfolio also consisted of six blockbuster drugs (at least $1 billion in annual revenue) in 2022, including breast cancer therapy Verzenio, immunology treatment Taltz, and diabetes/heart failure medicine Jardiance.
But as great of a blockbuster drug lineup as Eli Lilly had in 2022, there is reason to believe that the best is yet to come for the mega-cap drugmaker. That's because the recently launched diabetes medicine named Mounjaro is rapidly ascending toward blockbuster and smash-hit status. Launched late in the second quarter of last year, the promising drug raked in nearly $500 million for the drugmaker in 2022.
If the medicine establishes itself as the leading treatment for diabetes and is able to execute upon approval to treat obesity, it could be a mind-boggling growth catalyst for Eli Lilly. Goldman Sachs' Chris Shibutani believes that the drug could generate $27 billion in peak annual sales within the next 10 years. For context, this alone would nearly be a doubling over the $28.5 billion in revenue that the entirety of Eli Lilly took in during 2022.
Eli Lilly also has dozens of other potential blockbuster drugs in its pipeline like mirikizumab and lebrikizumab that could soon be launched. This is why the analyst consensus is that Eli Lilly's earnings will compound by 22.9% annually over the next five years-- good enough to triple the drug manufacturers industry average earnings growth outlook of 7%.
Image source: Getty Images.
A dividend with plenty of upside
Eli Lilly's 1.4% dividend yield is lower than the Dow Jones index's 2% yield. However, Eli Lilly's tremendous capital appreciation and significant dividend growth in the last 10 years makes up for its lower starting yield.
And with the dividend payout ratio set to come in around 53% in 2023, Eli Lilly's dividend is reasonably well covered. That's why the company should have no problem handing out double-digit dividend hikes for the foreseeable future.
The stock could be a buy
Up 20% in the last year, Eli Lilly isn't a classically cheap stock. Eli Lilly's forward price-to-earnings ratio of 28.2 is more than double the drug manufacturers industry average of 12.8. But given its quality and impressive growth potential, the stock is a no-brainer buy for dividend growth investors with a five-plus-year investing time frame.
