Viatris (VTRS 0.18%) and Apple (AAPL -0.57%) are two dividend-paying stocks that don't have much in common, which can make them a bit difficult to compare as investments. Whereas Viatris makes generic medicines like Lipitor, Apple makes its own branded products like the iPhone. Yet, it's safe to say that people aren't inclined to go without either of those items.
So does it make more sense to look for passive income with the healthcare company, or with one of the technology sector's top dogs? Let's dive in and compare.
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Selling generic drugs can provide years of passive income
There are a few arguments for considering Viatris a better dividend stock than Apple, starting with the fact that the generic drug manufacturer will yield you a lot more in dividend income per dollar.
Viatris' forward dividend yield over 5.2% means that you'll get a decent cash return on your investment from the first payment onward. Likewise, management states that it's a priority to continue hiking the dividend and returning capital to investors via share buybacks, and it insists that 2023 will be the year when those two policies start to accelerate.
But there's a very limited track record of it actually doing either of those things as the company only completed its spinoff from Pfizer in late 2020. So investors need to take management's signaling with a grain of salt.
In 2022, Viatris brought in more than $16.2 billion in sales, and Wall Street analysts estimate on average that it'll sell around $15.6 billion in 2023, with a similar sum slated for 2024. The decline in growth is a result of a recent spinoff of Viatris' biosimilar medicines business, for which it received $2 billion in cash and $1 billion in convertible preferred equity in the (private) buyer, Biocon Biologics.
In the near future, Viatris will launch new generics in its ophthalmology and complex injectables segments, among others. This should bring in around $500 million each year between 2024 and 2028, which would give it a relatively stable earnings per share (EPS) growth rate of about 15% per year. Viatris will also be expanding into China, which should drive further growth. That should provide enough leftover money to pass to shareholders as well as reduce its debt load of $19.5 billion.
Finally, there's the underlying durability of Viatris' business. Medical systems are going to need inexpensive supplies of generic medicines for the foreseeable future, and it'll take some pretty gnarly economic turbulence before Viatris' sales are threatened. Furthermore, while it's true that the company is always going to be fighting against erosion of its market share from newer and better medicines that hit the market, it'll eventually be able to make generic copies of those too.
So in the long term, Viatris' model looks quite stable. Just don't forget that it hasn't actually proven that it can operate that business model profitably over time as of yet.
Apple may be better for those with lower risk tolerance
As much as people are going to continue needing generic drugs, they're also going to keep buying Apple's iPhones, computers, cloud services, apps, and other products, and investors are going to keep reaping the rewards. And that probably makes it a better dividend stock for most investors with an average risk tolerance, at least for today.
First off, Apple is growing much faster than Viatris, with its top line rising by 43.6% in the last three years to top $394.3 billion, and its bottom line climbing by 73.8% to reach $99.8 billion in the same period. To accomplish that, it followed the same formula as it'll likely do in the future: make incremental improvements to its products, price them at a premium, and rely on its massive base of highly loyal customers to replace their old Apple devices every few years.
It'll also be reaping the rewards of its App Store platform, all the while collecting a portion of the revenue from developers that market their programs there.
Over the last five years, Apple increased its dividends per share by an average of 8.5% annually, which is neither rapid nor sluggish. But it doesn't make its low dividend yield of near 0.6% any more palatable. However, in the same period, it repurchased an average of $77.1 billion of its shares per year. So even if shareholders would need a much larger initial investment to get the same amount of dividend income as they would with Viatris, they're also exposed to a significantly higher pace of share price appreciation, in part because there are fewer outstanding shares over time.
The other factor that makes Apple the better dividend stock is that it has a much longer history of paying out to shareholders, successfully competing, and being a relatively stable investment over time. Simply put, its brand is a competitive advantage that helps to lock in its market share and keep its profit margin nice and wide -- it's currently near 24.5%, which is within a few percentage points of its norm over the last 10 years.
Viatris simply hasn't shown that it can be profitable and pay out its dividends over a similarly lengthy period yet, so it's a riskier investment.
