Pfizer (PFE 0.55%) and Gilead Sciences (GILD 0.23%) are two of the world's largest and most prominent drugmakers, not that this has somehow prevented investors from selling off their shares this year. Both companies have been lagging the market by some margin since 2023 started. Even so, Pfizer and Gilead have plenty of redeeming qualities, among which is the fact that they are consistent dividend payers whose shares look attractively valued right now.
Let's consider why income-seeking investors should jump at the opportunity to add shares of these companies to their portfolios.
1. Pfizer
Pfizer's stock is down by 35% since January. This terrible performance has made Pfizer's shares almost too cheap. The company's forward price-to-earnings (P/E) ratio is just 10, compared to an average of 15.1 for the pharmaceutical industry. This means very little unless Pfizer can bounce back, but the good news is that it can.
Despite its coronavirus-related sales falling off a cliff -- the main reason it is lagging the market -- Pfizer has substantially rejuvenated its lineup this year thanks to a series of approvals. These include the company's alopecia areata treatment, Litfulo, and its vaccine for the respiratory syncytial virus, Abrysvo, among several others.
Pfizer's top line should return to growth soon -- it needs sales of its COVID-19 products to stabilize and comparisons to the abnormal past two years to stop. Meanwhile, the company has an incredibly deep pipeline, which is getting even more attractive thanks to acquisitions.
Pfizer's buyout of Seagen, a cancer specialist, is just the latest -- and perhaps the best -- example. Seagen's pipeline features nearly 40 programs, all in oncology. The acquisition has the potential to turn Pfizer into one of the leaders in this therapeutic field, which happens to be one of the largest and fastest growing in the industry. The $43 billion that Pfizer is dishing out, which it can afford thanks to its large coronavirus-related success, might well be worth it.
Pfizer also has candidates of its own. It currently boasts nearly two-dozen programs in late-stage studies. The company's string of key approvals should continue well into next year.
And the dividend? Pfizer offers an extremely attractive yield of 4.95% and has raised its payouts by a decent 20.6% in the past five years. Although the company's cash payout ratio of 85% looks high -- likely because of the company's recent acquisitions -- Pfizer is committed to growing its dividend over time.
The drugmaker's extensive portfolio should allow it to generate steady revenue and earnings for years while paying back shareholders with dividend hikes. Investors can't go wrong with this dividend stock.
2. Gilead Sciences
Gilead Sciences is a biotech giant specializing in viral diseases, especially HIV (where it is the leader), and oncology. The company's sales have fluctuated somewhat in recent years due to Veklury, an antiviral that treats COVID-19. Excluding this product, Gilead Sciences' underlying business hasn't been that strong either, partly due to the adverse effects of the pandemic, but things are improving.
It continues to lead the HIV market thanks to blockbusters such as Biktarvy and Descovy, while new approvals such as Sunlenca should make meaningful contributions in time. Gilead Sciences' oncology business should soon yield more $1 billion-a-year products, too. Yescarta already reached that milestone last year, and Trodelvy should do so within a couple of years. Both have been growing their sales rapidly as Gilead seeks to decrease its reliance on its HIV business.
Gilead's pipeline features a little over 60 programs. Of these, 16 are in late-stage studies in oncology and many more are in phase 1 or 2 clinical trials. In other words, the biotech can expand its lineup and deliver steady financial results despite what the market might think.
The company has also increased its payouts by 32% in the past five years. The stock's current yield of 4.01% is well above that of the S&P 500, and its cash payout ratio of 42% leaves plenty of room for more hikes. To top it all off, the company's forward P/E stands at just 11.5 as of this writing.
Gilead Sciences probably isn't for investors looking for a high-growth stock, but the company's robust and predictable business -- along with its reasonable valuation -- makes it ideal for those seeking a blue-chip dividend stock.
