Healthcare stocks, particularly pharmaceutical stocks with solid dividends, make great long-term investments.
In general, the need for healthcare products and services is stable, even during economic downturns. When high interest rates in early 2022 caused several stocks to fall, healthcare was one of the few sectors that didn't see a big drop. The same can be said for stable dividend stocks because companies that deliver a solid dividend generally have solid cash reserves, giving them an edge in bear markets. Investors also tend to be more loyal to dividend stocks, knowing that even if the share price drops, they will, in all probability, receive a quarterly dividend. Investing in solid dividend paying companies in the healthcare business means investors have double protection in bear markets or recessions.
Viatris (VTRS 0.87%), Pfizer (PFE 0.55%), and GSK (GSK 0.49%) all have dividends with a yield of 4% or more. They also have payout ratios below 32%, meaning the dividends are likely safe and increases should continue.
All three have seen their shares drop this year to the levels that make them bargains, based on their price-to-earnings ratios, with all three trading at or below seven times earnings.
PFE Dividend Yield data by YCharts.
Viatris is seeing progress from biosimilars
Viatris has seen its shares drop more than 10% this year. The company, formed from the merger of generic drug maker Mylan and the Upjohn division of Pfizer in 2020, has been in the process of reinventing itself, as it launches new products to add to its stable of generics and off-patent former blockbusters that include Lipitor, Lyrica, Viagra, and EpiPen injectors.
In the short term, the company will likely see erosion of revenue, as its off-patent drugs will continue to see declining sales. In the first quarter, the company's revenue was down 11% year over year, to $3.7 billion. Its earnings per share (EPS) fell to $0.19, compared to $0.33 in the same period a year ago. However, the company said it expects $500 million in sales from new drugs this year, and it already had $83 million from the new launches in Q1.
In March, it got U.S. Food and Drug Administration (FDA) approval for Breyna as the first generic for Symbicort, an AstraZeneca blockbuster used to treat asthma or chronic obstructive pulmonary disease (COPD).
The company raised its quarterly dividend by 9% last year to $0.12, giving it a yield of 4.8%, but a payout ratio of just 30.5%, well within safety guidelines. Moreover, the company paid down $546 million in debt in Q1 while returning $250 million in stock buybacks, two other positives for investors.
Pfizer's pipeline, M&A activity is paying off
Pfizer's stock is down more than 30% this year. The company saw Q1 revenue and EPS fall by 26% and 29% year over year, respectively, thanks to decreased sales for COVID-19 vaccine Comirnaty. On top of that, the company is facing a bevy of patent cliffs this decade.
However, Pfizer is showing it has the ability to regenerate revenue with new products and key acquisitions.
Since late May, the pharmaceutical company has had five approvals from the FDA, including growth hormone deficiency drug Ngenla, migraine drug Zavzpret, alopecia drug Litfulo, respiratory syncytial virus (RSV) vaccine Abrysvo, and a full approval for COVID-19 antiviral Paxlovid.
This year, the company's big mergers and acquisitions (M&A) splash so far is its proposed $43 billion purchase of Seagen. If approved by regulators, it would bolster a Pfizer oncology portfolio that already has 24 therapies. Seagen has four cancer drugs that pulled in a combined $1.7 billion in 2022: Lymphoma therapy Adcetris, bladder cancer drug Padcev, breast cancer therapy Tukysa, and cervical cancer drug Tivdak.
The Seagen deal is just the latest and largest in a recent string of acquisitions for Pfizer, including an $11.6 billion purchase of Biohaven Pharmaceutical, a $6.7 billion purchase of Arena Pharmaceuticals, and a $5.4 billion buyout of Global Blood Therapeutics , all completed last year.
Pfizer has raised its quarterly dividend for 14 consecutive years, including a 2.5% increase this year to $0.41, giving it a yield of 4.6% but a payout ratio of only 31.1%.
GSK is selling at a bargain price
GSK's shares are down over 34% this year, but, like Pfizer, that's mostly due to declining sales from the company's COVID-19 products. When you take those out of the mix, the company's Q1 sales were up 10% year over year. EPS was 36.8 pence (around $0.45), down 1% over the same period last year.
Unlike Pfizer, GSK doesn't have any major patent cliffs on the horizon. Its most recent growth has been from shingles vaccine Shingrix, which did 833 million pounds (about $1 billion) in sales in Q1 (up 19% year over year), and from its HIV portfolio, which had 1.5 billion pounds in sales (around $1.8 billion), up 22% over the same period last year.
The company has already had a big year with new drugs. In May, Arexvy was the first RSV vaccine for adults 60 and older to get FDA approval. In February, the FDA approved Jesduvroq, an oral anemia treatment for adults with chronic kidney disease who have been receiving dialysis for four months. Later that month, GSK received full approval from the FDA, up from accelerated approval, for Jemperli to treat advanced endometrial cancer.
GSK raised its dividend by 7% this year to $0.34, delivering a yield of around 4.18%. Its payout ratio is only 22%, so there's plenty of room for continued growth.
