Novo Nordisk (NVO 1.84%) and Eli Lilly (LLY 2.22%) are locked in a battle around GLP-1 weight-loss drugs. It is a huge potential market, and the new class of drugs is very important. However, Novo Nordisk's story is much bigger than weight loss. Here's why it could be a long-term hold no matter what happens in the market, or with GLP-1 drugs.
Novo Nordisk made insulin before GLP-1 drugs
Novo Nordisk is one of the world's largest producers of insulin, a vital medication for those with diabetes. Generally speaking, when you take insulin, you need it regularly. As such, Novo Nordisk has a very attractive recurring revenue stream. That's an important foundation for the business.
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One area where this pharmaceutical company's foundation shows up is in its dividend payout ratio. Despite falling behind Eli Lilly in the GLP-1 weight-loss drug space, Novo Nordisk's trailing 12-month payout ratio is a very comfortable 40%. In fact, it has never risen above 50%, even during the deep 2007 to 2009 recession.
Meanwhile, the dividend yield is well above the market at 3.9%. For reference, the average pharmaceutical stock has a yield of 1.7%. So the high yield here is well supported, and that's largely thanks to the company's strong diabetes business.
GLP-1 drugs are important, too
That said, investors shouldn't ignore that Novo Nordisk is also a GLP-1 drug stock. Eli Lilly has taken the lead, but Novo Nordisk remains an important player in the new drug niche. Notably, it recently launched the first GLP-1 pill, which should help it regain market share from Eli Lilly, at least in the short term. People prefer pills over shots, for obvious reasons.
NYSE: NVO
Key Data Points
The takeaway from Novo Nordisk's development of a GLP-1 pill is that it remains an innovative drug maker. The excitement around weight-loss drugs is so high that investors may be overlooking the company's long-term opportunities and fundamental business strengths. All Wall Street is seeing is the fact that Eli Lilly's GLP-1 drugs are performing better in the market right now.
Novo Nordisk's strong core business and ongoing innovation in a newly developing drug niche suggest this financially strong dividend stock is an attractive holding, no matter what the market is doing. Indeed, consumers are still going to need insulin during a bear market and people will probably still be looking to lose weight, too.
