A $1,000 investment will buy you nearly 20 shares of Bristol Myers Squibb (BMY +0.79%) and about 10 shares of Medtronic (MDT 0.20%). For dividend lovers, they should both be appealing buy-and-hold stocks, assuming your preferred holding period is "forever."
Here's why Bristol Myers Squibb's 4.6% yield is so attractive in the drug space and why Medtronic's 2.9% yield is so alluring in the medical device niche.
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Bristol Myers Squibb: A balance of risk and reward
If you are only looking to maximize yield, you'll probably be attracted to Pfizer (PFE +0.60%) and its 6.8% yield in the pharmaceutical niche of the healthcare sector. The problem is that its lofty yield comes with an over 100% dividend payout ratio. If you're looking for a dividend that's well supported, you might consider Eli Lilly (LLY +0.50%), which has a roughly 30% payout ratio, but the yield is a modest 0.6%.
A solid middle ground between the two is Bristol Myers Squibb, which has a 4.6% yield and a payout ratio of around 85%. That suggests there's some wiggle room on the dividend before it would be at risk of a cut. That said, there are some risks to consider, most notably the potential loss of patent protections for blockbuster drugs. When that happens, revenue from those drugs often declines sharply, a phenomenon known as a patent cliff.
NYSE: BMY
Key Data Points
Bristol Myers Squibb's cancer drugs Revlimid and Pomalyst will face generic competition in 2026, and cardiovascular drug Eliquis will lose its patent protections in 2028. However, patent cliffs are a normal part of the industry. Bristol Myers Squibb has been investing to bolster its drug pipeline, including making several acquisitions in recent years. It is likely to survive as a company, and, if history is any guide, its dividend will likely survive as well. That said, high-yield Pfizer is going to survive, too, but its history includes a dividend cut.
All in, Bristol Myers Squibb is a solid balance of risk and reward if you are trying to maximize yield.
Medtronic: Getting back on the growth track
Medtronic, with its 2.9% yield, is a slightly different story. This industry-leading medical device maker was growing fairly strongly until a few years ago, when its large size finally caught up to it. It isn't uncommon for large companies to become somewhat inefficient and for their profitability to suffer. The big story for dividend investors is that dividend growth went from the mid to high single digits to the low single digits.
Management has been doing the hard work necessary to streamline the company and refocus on growth. That has included exiting businesses, cutting costs, and investing in new products. The next big move is the spinoff of the company's diabetes division. Meanwhile, some of the healthcare company's new products are starting to gain traction, including its Hugo surgical robot system.
NYSE: MDT
Key Data Points
Medtronic appears poised to pick up steam on the growth front, which should translate into higher dividend growth as well. Notably, the dividend has been increased for 48 consecutive years, which is just two years shy of Dividend King status. With a payout ratio of around 75%, it seems highly likely that Medtronic will join the Dividend Kings. And with the business overhaul, it seems highly likely that it will shift into a higher gear for growth. That sounds like a great story for a buy-and-hold investor looking for an attractive dividend stock.
A solid balance
As highlighted by Pfizer, you can find higher-yielding stocks in the healthcare sector than those of Bristol Myers Squibb and Medtronic. However, the key for long-term dividend investors is to strike a balance between risk and reward. Lean too heavily toward high yield, and you could end up with dividend cuts. That, however, doesn't seem like the most likely outcome with Bristol Myers Squibb or Medtronic, where the attractive yields seem well supported.
