Elevated inflation has prompted numerous interest-rate hikes in the past 14 months. Rate hikes have led to eventual recessions the past seven or eight times that the Federal Reserve tried to tame inflation. As a result, 60% of economists surveyed in March said they believe the U.S. will experience a recession in the next 12 months.
So how should investors prepare? Aside from making sure they have an adequate emergency fund, buying blue chip dividend stocks would be a smart move because they tend to be less volatile in market downturns than their non-dividend-paying counterparts.
Bristol Myers Squibb (BMY +0.12%) is a solid dividend payer, but should investors buy the stock now? Let's examine the company's fundamentals and valuation to resolve this question.
NYSE: BMY
Key Data Points
Climbing profits and an exceptional pipeline
With treatments across a variety of areas like oncology, immunology, and cardiovascular disease, Bristol Myers help millions of patients around the world each year.
The company has seven products that are on track to surpass at least $1 billion in 2023 sales, including top-selling cancer drugs like Opdivo and Revlimid, as well as Eliquis, the anticoagulant co-owned with Pfizer. These blockbuster products help support the company's $146 billion market capitalization, which makes Bristol Myers the eighth-largest drugmaker on the planet.
The New York-based company generated $11.3 billion in total revenue during the first quarter, which ended March 31. This was 2.7% lower than the year-ago period. But because the company sells its products throughout most of the world and the U.S. dollar was stronger than in the year prior, Bristol Myers faced roughly a 2% foreign-currency translation headwind in the quarter.
Factoring this out of the equation, revenue was down about 1% for the quarter. Robust revenue growth from Eliquis and Opdivo, coupled with growth in new products like the anemia drug Reblozyl and cancer drug Breyanzi, mostly offset the double-digit revenue decline in Revlimid.
Bristol Myers' non-GAAP (adjusted) diluted earnings per share (EPS) grew 4.6% year over year to $2.05 during the first quarter. Disciplined cost management helped the company's non-GAAP net margin to expand by 170 basis points to 38.1% in the quarter. Paired with a reduction in its share count from share buybacks, this explains how Bristol Myers' adjusted diluted EPS growth outpaced revenue growth for the quarter.
The drugmaker should have little trouble producing similar growth moving forward. That's because it has more than 50 compounds currently in clinical development within its pipeline, so analysts anticipate that the company will deliver 4% annual adjusted diluted EPS growth over the next five years.
Image source: Getty Images.
A safe and market-beating dividend
Bristol Myers currently sports a 3.3% dividend yield, which is nearly twice the S&P 500 index's 1.7% yield. Investors can rest easy knowing that the payout is secure because it's projected that Bristol Myers' dividend payout ratio will be modest at roughly 28% in 2023.
This gives the drugmaker the funds needed to complete acquisitions to shore up its future product portfolio and pipeline, as well as for share repurchases and debt repayment. This is why I expect dividend announcements like the most recent 5.6% payout raise to be the norm over the medium term.
The stock is a bargain
Shares of Bristol Myers have slipped 5% so far in 2023. This has turned a good long-term buying opportunity into an even better one.
Bristol Myers' forward price-to-earnings ratio of 8.4 is far less than the drug manufacturers' industry average of 13.4. Even considering the loss of exclusivity of Revlimid and the looming loss of exclusivity for other products, there seems to be an ample margin of safety to buy Bristol Myers at its current share price.
