Income investing is a widely popular investing strategy. Many investors appreciate and rely on the regular cash flow that dividend stocks can generate for them.
Investing for income in the pharmaceutical industry isn't much different than any other industry. Investors should seek out businesses with current products that can finance dividends, and future products that can sustain those dividends. Here are two companies that could do just that, which income seeking investors should consider purchasing for their portfolios.
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1. Amgen: 3.8% dividend yield
With dozens of products treating millions of patients with various common ailments like cancer, osteoporosis, and cardiovascular disease in 100 countries, Amgen (AMGN 0.22%) is a pharmaceutical juggernaut. Extrapolating its results from the first quarter of 2023, 10 of the company's dozens of medicines are on pace to surpass $1 billion in annual sales this year. Led by the osteoporosis drug Prolia, these treatments include the cholesterol-lowering drug Repatha, osteoporosis medicine Evenity, and multiple myeloma therapy Kyprolis.
Alongside newly launched products such as Tezspire, the asthma drug co-owned with AstraZeneca, and the lung cancer medicine Lumakras, this could generate decent top-line growth in the near-term. That explains why analysts believe Amgen's total revenue will grow by 0.8% and 6.8% this year and the next, respectively, topping $28 billion in 2024.
Looking out even further, Amgen has dozens of compounds currently in different stages of clinical development. As products like its Stelara, Eylea, and Soliris biosimilars are launched over the next couple of years, that should more than offset the sales decline in products facing stiff competition, like immunology drug Enbrel. This is why the company's non-GAAP (adjusted) diluted earnings per share (EPS) should keep growing over the medium term, which can support further dividend growth.
In the meantime, income investors can collect a dividend that is more than double the S&P 500 index's 1.6% yield. And with the dividend payout ratio set to register at below 48% in 2023, moderate dividend growth should be primed to continue. To top it all off, Amgen's forward price-to-earnings (P/E) ratio of 11.9 -- compared to the drug manufacturers' industry average forward P/E ratio of 12.9 -- is appealing.
2. Pfizer: 4.6% dividend yield
With a $202 billion market capitalization, it shouldn't come as a surprise that Pfizer (PFE 0.55%) earns its spot as the seventh-biggest pharmaceutical company in the world. With six non-COVID products set to be either blockbusters or mega-blockbusters ($5 billion or more in annual sales) in 2023, Pfizer has a proven track record of bringing in-demand products to the market.
Coupled with the 100-plus projects in its pipeline as of May 2, this is how analysts expect the company's nearly $70 billion revenue base to resume growth in 2024 and beyond. Some of Pfizer's most promising products within its pipeline include the respiratory syncytial virus vaccine Abrysvo, the growth hormone deficiency drug Ngenla, and multiple myeloma medicine elranatamab.
And based on commentary from CEO Albert Bourla, these are just three of 19 products that the company plans to launch in 2023 and 2024. For context, Pfizer typically only launches one or two new products each year. That's why investors can have confidence that the company's topline and bottom-line should stabilize and grow moving forward.
Investors will also appreciate the fact that Pfizer's market-tripling dividend is well-covered. The company's dividend payout ratio is positioned to come in at about 49% in 2023. This leaves the drugmaker with ample capital to complete bolt-on acquisitions, repurchase shares, and pay down debt, while also further upping the dividend. Sealing the deal, shares of Pfizer are trading at a forward P/E ratio of just 10.2. Such a cheap valuation makes the stock a clear buy for income investors.
