Dividend stocks are great for several reasons. Some use the regular payouts they offer to complement their income, whether in retirement or otherwise, while others reinvest the money to boost long-term returns. Dividend stocks have generally outperformed their non-dividend-paying peers over long periods.
Clearly, this mode of investing has advantages, but if there's one thing better than investing in dividend stocks, it's investing in cheap dividend stocks. Let's consider two companies that fit the bill: Pfizer (PFE 0.55%) and Viatris (VTRS 0.87%).
1. Pfizer
Last year, Pfizer's revenue dropped by 42% year over year to $58.5 billion. The decline was due to the receding pandemic. Demand for Pfizer's COVID-19 vaccine, Comirnaty, and its related medicine, Paxlovid, dropped off a cliff. Still, the drugmaker's current slump won't last forever.
Pfizer already has a plan to turn over a new leaf. Last year, it earned approval in the U.S. for seven brand-new products, more than double any of its competitors' total for 2023.These products will eventually help Pfizer's revenue start moving in the right direction.
It's also worth noting that Pfizer's underlying business, excluding its coronavirus portfolio, isn't performing that badly: Revenue increased by a solid 7% year over year in 2023. Pfizer's decision to join the COVID-19 market has been a net positive despite its current declining top-line. It became the company in the pharmaceutical industry to hit $100 billion in sales in 2023 thanks to it. The money it generated allowed it to invest in the future.
Pfizer made important acquisitions, including that of cancer specialist Seagen, for $43 billion. Seagen was already a successful oncology-focused biotech before having access to the kinds of funds Pfizer has. The newly formed entity under Pfizer should speed up innovation compared with what it would have been able to accomplish by itself. Pfizer plans on increasing the number of blockbuster cancer medicines in its portfolio to eight by 2030, up from five today.
Of course, Pfizer is also active in many other areas, from immunology to infectious diseases. It's developing an influenza vaccine to help address the low efficacy of currently available options. The drugmaker is also working on a combined COVID/flu vaccine. Both are in late-stage studies. Pfizer boasts 112 candidates in its pipeline. The company should significantly improve its lineup in the next few years, even more than it already has.
As for the dividend, the company has increased its payouts by just under 17% in the past five years. It offers a forward dividend yield of 6.18%. Lastly, Pfizer's forward price-to-earnings (P/E) ratio is just 12, compared with a forward P/E of 18.4 for the pharmaceutical industry. So Pfizer looks like an attractively valued dividend stock by this popular metric.
2. Viatris
Viatris hasn't been a standalone, publicly traded corporation for very long. The company was created when Pfizer's former subsidiary, off-patent drug specialist Upjohn, merged with the corporation then known as Mylan N.V., which focused on developing and marketing generic drugs, back in late 2020.
The company's position in the market for generic and branded pharmaceutical products is enviable. It owns several popular brands that should continue attracting customers for a long time. These include Viagra, Xanax, Lipitor, and more. This business creates a somewhat stable source of revenue for the company.
Viatris has also significantly changed its operations recently by shedding lower-growth opportunity segments. For instance, it got rid of its biosimilar and women's healthcare units. Besides cutting off low-growth opportunities, Viatris planned to pay off debt while investing in more potentially lucrative avenues.
The company created a new eye care division through acquisitions and announced a research and development partnership with Switzerland-based pharmaceutical company Idorsia. Viatris added two potential blockbuster candidates to its late-stage pipeline through the Idorsia deal, while it expects its new eye care unit to add more than $1 billion in annual sales by 2028.
Viatris has struggled with top-line growth. Last year, its net sales of $15.4 billion remained flat on an adjusted basis (that is, taking into account acquisitions and divestitures). However, thanks to recent business changes, the company could make significant progress on that front in the years ahead. Meanwhile, Viatris offers a forward yield of 3.89%, though it has increased its dividend just once since it became a standalone company.
Viatris' forward P/E ratio of 4.4 looks more than reasonable. For income seekers willing to stay the course for a while, Viatris looks like a good option.
