Both companies offer attractive dividends, but which one is a better buy right now? Let's take a closer look at their financial performance, growth prospects, valuation, and dividend sustainability to find out.
Takeda Pharmaceutical is a Japanese drugmaker that focuses on four key therapeutic areas: oncology, neuroscience, immunology, and hematology. It also has a presence in plasma-derived therapies, vaccines, and over-the-counter products. Takeda has a diversified portfolio of products, with multiple global franchise brands that generate more than $1 billion USD in annual revenue, as well as several others that are close to reaching blockbuster status. Some of its best-selling drugs include Entyvio for ulcerative colitis and Crohn's disease, Ninlaro for multiple myeloma, and Vyvanse for attention deficit hyperactivity disorder (ADHD).
Viatris is a relatively new company that was formed by the merger of Mylan and Pfizer's Upjohn unit in November 2020. It is a global leader in generic drugs, as well as branded products such as EpiPen, Lyrica, and Viagra. Viatris aims to leverage its scale and geographic reach to deliver affordable and accessible medicines to patients around the world. Viatris has three operating segments: complex generics, generics, and branded drugs. The company also offers shareholders direct insights into its financial performance geographically by breaking down sales according to region: JANZ (Japan, Australia, and New Zealand), Greater China, emerging markets, and developed markets.
Financial performance and outlook
In terms of financial performance, Takeda has been growing its revenue steadily over the past five years, thanks to its acquisition of Shire in 2019 and its strong organic growth. Over this period, the drugmaker has averaged an annual increase in revenue of 9.97%, which is an above-average growth rate for a large-cap pharma company. Unfortunately, the recent loss of exclusivity for Vyvanse in the U.S. is expected to weigh on its financial results in the near term. Takeda, per its most recent quarterly report, said revenue is poised to drop by low single digits in fiscal year 2023.
Viatris, on the other hand, has been riding the struggle bus for approximately two full years due to declining sales of key drugs like Lipitor, Norvasc, and Lyrica, along with broad pricing pressure across the generic drug landscape. Over the prior 24 months, for instance, the drugmaker's annual revenue has declined by an unsightly 13.6%. Although Viatris ought to benefit from a handful of new drug launches, analysts still expect the company's top line to fall by another 1.7% in 2024. Viatris, in short, doesn't sport a compelling growth profile.
Valuation, dividend yield, and sustainability
In terms of valuation, Viatris trades at a lower forward-looking price-to-earnings (P/E) ratio than Takeda. Specifically, Takeda stock trades at a forward P/E of 9.78, while Viatris stock trades at a forward P/E of 3.92. Viatris also has a lower price-to-sales (P/S) ratio than Takeda, based on its trailing 12-month revenue. Takeda has a P/S of 1.7, while Viatris has a P/S of 0.85.
On the dividend front, Viatris and Takeda both offer annualized yields of approximately 4.3% at current levels. However, Viatris has a payout ratio of 31.4%, while Takeda has a payout ratio of 49.2%. While both companies have ample room to grow their dividend, Viatris is arguably the safer income stock in light of its markedly lower payout ratio.
Based on these factors, Viatris screens as the modestly more attractive high-yield dividend stock. Neither company is poised to post stellar top-line growth, but Viatris offers a more compelling valuation and a slightly safer dividend.