Equity markets experienced significant volatility this year. Many investors feared that President Donald Trump's aggressive trade policies would plunge the economy into a recession and lead to a full-blown stock-market meltdown. However, although the S&P 500 flirted with bear-market territory, it has since rebounded and performed relatively well for the year.
Even so, it always helps to buy shares of strong dividend stocks whose businesses can remain afloat when the economy tanks. Here are two companies that have what it takes: Novartis (NVS 1.08%) and Gilead Sciences (GILD 1.92%).
The pharmaceutical advantage
The pharmaceutical industry is a defensive sector, meaning that drugmakers tend to perform relatively well even when the economy doesn't. There are several reasons why. Here are just two of them.
First, and most obviously, people need lifesaving therapies at all times. Rising economic instability doesn't change that. And drugs that treat serious and sometimes life-threatening diseases aren't where consumers are likely to make cuts first.
Second, in most developed countries, patients often don't pay the full cost of branded therapies, since they're covered by insurance or other schemes that help people shoulder their costs (the list prices are often far too high to be paid out of pocket). As long as insurers continue to pay a significant portion of the cost of essential medicines, even during recessions, the degree to which pharmaceutical companies are affected by economic downturns is relatively minimal compared to many other industries.
Why Novartis?
Novartis boasts a vast lineup of more than 20 branded drugs, 14 of which were in blockbuster territory in 2024. The portfolio includes Entresto, a therapy for chronic heart failure; immunosuppressant Cosentyx; asthma medicine Xolair; and cancer drugs Kisqali and Pluvicto.
The company generates consistent revenue and earnings. Second-quarter sales jumped by 12% year over year to $14.1 billion, while earnings per share (EPS) were up 23% year over year to $2.42.
Unfortunately, Entresto, one of its top-selling drugs, is facing a patent cliff and will soon experience a significant decline in sales. However, Novartis is ready to take on generics. Despite this patent cliff, it still expects its sales to grow by a high-single-digit percentage for the year, a respectable performance for a pharmaceutical giant.
Novartis' newer approvals should also help it move past this issue. Vanrafia, which treats proteinuria (excess protein in urine) in patients with IgA nephropathy, earned the green light in April. The company has a deep pipeline, with dozens of products that should lead to plenty of additional approvals and label expansions.
Lastly, Novartis has an excellent dividend record, having raised its payouts for 28 consecutive years and boasting a current forward yield of 3.2%, higher than the S&P 500's average of 1.3%. The stock is an excellent choice for long-term investors seeking dividend growth.
Why Gilead Sciences?
Gilead Sciences is the leader in the HIV drug market thanks to treatments like Biktarvy, the leading HIV regimen in the U.S., with a 51% share of the market in the country. Descovy, for pre-exposure prophylaxis (PrEP), is also one of the best sellers in that niche, with a more than 40% market share in the U.S.
Gilead's revenue only grew by 2% year over year to $7.1 billion, but EPS came in at $1.56, 21% higher than during the comparable period of the previous fiscal year. Sales of Veklury, a medicine for COVID-19, have been highly volatile, declining 44% in the second quarter. Excluding that segment, the company's revenue grew by a slightly better 4% year over year.
Despite uncertainty about Veklury, Gilead should maintain strong financial results, as its all-important HIV business continues to move in the right direction. The company is also making an increasing push in oncology, with more late-stage programs in that field than in HIV, and has recently earned new approvals.
Finally, Gilead Sciences' recent forward yield tops 2.8%, and it has increased its payouts by 83.7% in the past decade. Gilead is a good choice to navigate this uncertain market and beyond.
