Income investing can be a great strategy for people looking to match their recurring bills with recurring dividend income. The trick is diversifying across top businesses in numerous industries to build an unstoppable stream of passive income.
Many leading pharmaceutical companies are known for reliably paying dividends to shareholders. Swiss drugmaker Novartis (NVS -1.64%) and French drugmaker Sanofi (SNY -0.47%) each look like smart picks for income investors. Here's why these two top biotech stocks are potential buys right now.
1. Novartis: It's raining blockbusters
Including its Sandoz generics and biosimilars business which is expected to complete a spinoff in the second half of this year, Novartis' products treat almost 800 million people around the world. With such an extensive reach, it's not shocking that the company has 14 medicines that are on pace to top $1 billion in revenue. Leading the way, heart failure treatment Entresto is set to surpass $6 billion in 2023 revenue. As an idea of just how well-rounded a portfolio Novartis boasts, Entresto made up just 11% of its $26.6 billion in total revenue in the first half of 2023.
Luckily, the company looks prepared for the future as well. This is because its pipeline consists of more than 130 projects that are currently in clinical development across therapy areas like hematology, immunology, and cardiovascular. As more of these products are approved by regulatory authorities and launched, business growth should continue. That is why analysts anticipate that Novartis' non-GAAP (core) earnings per share (EPS) will increase by 8.7% annually for the next five years.
If this growth outlook wasn't convincing enough, the company also offers a 3.4% dividend yield. That's over twice as much as the S&P 500 index's 1.5% yield. Taking into consideration that the dividend payout ratio is going to come in at around 46% over the next 12 months, this payout is also rather safe. Best of all, investors can snatch up shares of Novartis at a forward price-to-earnings (P/E) ratio of 13.7 -- a marginal discount to the industry peer average of 13.8.
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2. Sanofi: A high-yielding value pick
Novartis isn't the only big pharma company with an astoundingly strong product lineup. Sanofi's product collection is made up of six medicines and two vaccine franchises on track for blockbuster status in 2023. Dupixent, the company's immunology smash-hit co-owned with Regeneron, has already generated over $5 billion in the first six months of this year -- up a blistering 36.7% over the year-ago period. With the company on the verge of adding more indications for Dupixent, this big top-line growth should continue for the foreseeable future.
Aside from just Dupixent, Sanofi has other levers to grow its business. The company's looming respiratory syncytial virus vaccine launch with AstraZeneca and its recent Provention Bio acquisition can drive higher revenue. Along with nearly 80 projects in its pipeline, these factors account for how analysts think earnings will grow at an annual clip of 7% over the next five years.
Pairing this growth forecast with a 3.5% dividend yield makes Sanofi a no-brainer pick for most investors. Given that the dividend payout ratio is poised to clock in below 40% in 2023, investors can also sleep well at night knowing the dividend is sustainable. Clinching the case that Sanofi stock is a buy: Shares can be purchased at a forward P/E ratio of just 6.3.
