A high-yielding dividend stock can generate lots of dividend income for your portfolio. But that doesn't mean you should buy a stock only because of its yield. Dividends are never guaranteed and investors shouldn't assume they won't change or suddenly stop. Plus, it's also a good idea to invest in a growing company so that there's potential for the dividend to increase in the future.
Drugmaker Viatris (VTRS 0.87%) provides investors with a high payout, but I would avoid the stock for one big reason: It has a growth problem.
Viatris' top products are struggling
Viatris last reported earnings on May 8. For the first quarter, which ended on March 31, the company's net sales of $3.7 billion declined by 11% year over year. And even if you look at the operational change (which factors out the impact of foreign exchange), it still showed a 6% decrease from the prior-year period.
The company reports on the performance of several "key global products," and unfortunately, very few of them showed year-over-year growth:
Source: Company filings. Chart by author.
It can sometimes be misleading to look at just a single quarter. But when looking at how Viatris' top products did for all of 2022 versus 2021, it's a similar story: Sales have been underwhelming. And in the chart below, none of the company's top products showed any growth from the previous year.
Source: Company filings. Chart by author.
Why dividend investors should care about growth
Even if you're a dividend investor and your priority is just a recurring payout, growth is still an important consideration. If a business is struggling to grow its top line, then that can affect its earnings, which can end up impacting its ability to pay its dividend. And if a company isn't growing, investors also shouldn't expect the dividend to increase.
Inflation is a good reminder of why investors should seek out dividend growth stocks because without a rising dividend, the value of that recurring income can diminish over time due to a rising cost of living.
This year, Viatris projects its revenue will come in between $15.5 billion and $16 billion. At the midpoint of around $15.8 billion, that would represent a decline of nearly 3% from the $16.2 billion the company reported in 2022. And last year's sales were already down 9% from the previous year.
To help pay down debt, Viatris sold its biosimilar business in November 2022, which will have a negative effect on sales. But a few months later, in January, it also launched a new eye care division following the acquisition of Oyster Point Pharma and Family Life Sciences. And the company is still in the midst of launching many new products, projecting that they will add at least $500 million in revenue to the top line in 2023. Yet despite that boost and the launch of a new division, Viatris' sales are still going in the wrong direction.
Why I'd avoid Viatris' stock
Viatris' 4.7% dividend yield is attractive and the company's payout ratio of around 30% is sustainable; it doesn't need a booming business to support the dividend, at least for now.
But without some growing products to drive the company's top line higher, it could be a challenge for the business to rise in value and for Viatris to grow its dividend. Over the past 12 months, shares of Viatris have climbed by less than 2%, while the S&P 500 has soared 17%.
While Viatris may be a good option for risk-averse investors, my concern is that the best-case scenario is that the investment underperforms the market, and in the worst-case scenario, you end up losing money on it due to its lack of growth. There are simply better dividend stocks out there for investors to choose from.
