Especially if you're living on a fixed income, being able to bring in even $1,500 in extra money each year via dividends can be a big change for the better. But it's often difficult to figure out which dividend stock has what it takes to keep paying out for years and years.
On that note, Viatris (VTRS 0.87%) is a dividend payer that tends to catch the imagination of investors thanks to its decently high dividend yield and its stable line of business. Plus, it wouldn't take too much money to build up a position big enough to generate a grand and a half per year. So let's see how much you'd need to make that happen on a comfortable five-year time frame.
An appealing dividend stock
In the long term, Viatris has the potential to be a great dividend holding for three reasons: the enduring appeal of its products, its plans for sustainable growth, and its disruption-resistant business model.
As a generic medicine manufacturer, all this company needs to do is to obtain the rights to manufacture in-demand drugs at an acceptably low price. People aren't about to stop needing Lipitor or Viagra, and Viatris owns the rights to create generic versions of both medicines. And while pharmaceuticals and biotechnology companies are constantly vying to develop new -- and potential blockbuster -- drugs that might make existing medicines obsolete, eventually generic variants for these will also hit the market once the patents expire for the original manufacturer. From Viatris' persepective, that's always a winning situation.
What investors need to keep an eye on
Viatris' main challenges are controlling costs and expanding carefully. The business model typically hinges on economies of scale, wherein, the larger its manufacturing scale for a given drug, the lower its price per unit becomes. And over the last three years, the drugmaker's quarterly cost of goods sold has declined slightly as a percentage of quarterly revenue. Plus, it's already profitable with a margin of around 12%, which is pretty good for a generics company despite selling drugs at much lower price points.
In terms of growth prospects, its eye care, complex injectables, and novel medicines segments could each be worth an additional $1 billion in annual sales by 2028. However, with nearly $16 billion in trailing-12-month revenue, potential investors should also keep an eye on earnings and free-cash-flow growth as well, instead of just focusing on revenue growth. Management plans to push the company further on both profitability fronts, while ensuring revenue growth.
Here's how much you'd need
Given its forward dividend yield of 4.6%, you'd need to buy around $32,608 in Viatris stock to generate $1,500 in annual passive income. Of course, that's way too big of an investment to make all at once for most investors. Instead, it probably makes sense to accumulate that sum by dollar-cost averaging by buying a smaller and more manageable amount of stock at regular intervals over a (potentially long) period of time.
For instance, if you could sock away roughly $125 per week for five years, that'd be sufficient to earn you the target amount of dividend income. Speaking from experience, it's a lot easier to stay consistent with such a long-term investing plan when you use automated purchases, assuming your brokerage supports them. But there's also a solid chance that you won't need to maintain your investing plan for that long.
Viatris will likely hike its dividend payment at least a few times within the next five years, and it might even do so on an annual basis. Even relatively small increases can add up to significant income for shareholders once they accumulate a large enough number of shares.
Is it the right move for you?
So, if you're patient enough, Viatris is a viable dividend stock. While it's true that you'll need to commit a significant amount of capital to get $1,500 in dividend income, it's a relatively safe investment, even if it won't necessarily grow as fast as the market or a growth stock. There's not much chance of a single competitor eating its lunch in a big way, nor are there major risks that seem to destabilize its business in the foreseeable future.
