The S&P 500 is up an incredible 25% over the past 12 months, but not all stocks in the benchmark index have participated in the rally. A handful of great healthcare stocks have fallen more than 25% from the highs they set less than a year ago.
Actions of Pfizer (NYSE: PFE), Bristol-Myers Squibb (NYSE: BMY)and CVS Health (NYSE: CVS) are down, but their dividend programs remain strong. Here’s why investors can rely on these high-yield stocks to keep growing their payouts for at least another decade.
1.Pfizer
Pfizer shares are down about 31% over the past 12 months. The pharmaceutical company’s development pipeline is producing new drugs, but the stock market cannot forget the rapid decline in sales of Comirnaty and Paxlovid, a COVID vaccine and antiviral treatment, respectively.
Despite declining sales, Pfizer has consistently increased its dividend payout every year since 2009. At recent prices, it offers a whopping 6.1% yield, and investors can reasonably expect at least another decade of consecutive annual increases. .
Comirnaty and Paxlovid’s combined first-quarter sales fell more than 60% year over year to $2.4 billion. Management predicts further declines for these drugs, but the worst is over and the dividend is well funded. It expects adjusted earnings per share to be in a range of $2.15 to $2.35, which is more than it needs to meet a dividend commitment currently set at $1.68 annualized per share.
Pfizer reported that first-quarter sales increased 11% year over year if we exclude Comirnaty and Paxlovid. With nine new drugs approved by the Food and Drug Administration (FDA) in 2023 alone, investors can expect a return to growth that could last throughout the next decade.
2.Bristol Myers Squibb
Shares of Bristol Myers Squibb are down about 35% from their peak last summer. At their knocked-down price, Big Pharma shares offer a nice 5.7% yield.
The stock has been under pressure lately as management cut its adjusted earnings outlook to a range of $0.40 to $0.70 from previous guidance of $7.10 to $7.40 per share.
That devastating earnings squeeze is primarily the result of a $14 billion acquisition of Karuna Therapeutics that the company completed in March. Big Pharma will record a one-time charge of around $12 billion, but the asset it acquired, KarXT, could be worth it.
The FDA is now reviewing an application that could make KarXT the first new schizophrenia drug that does not directly block dopamine receptors. The agency is expected to announce an approval decision for KarXT on or before September 26, 2024.
Bristol Myers Squibb shares have been trading at a low valuation of around 7 times free cash flow. Investors who pick up weakened pharmaceutical stocks now and hold on to them have a great opportunity to see market-beating gains over the long term.
3. CVS Health
We all know the leading retail pharmacy chain CVS Health. What you may not realize is that it owns one of the Big Three pharmacy benefit management companies and Aetna, a leading health insurer.
CVS Health shares have fallen about 27% from their high set in January. At recent prices, the healthcare conglomerate is offering a 4.4% yield, which is unusually high for a stock famous for its rapid dividend growth. Vertical integration of different healthcare businesses helped CVS Health increase its dividend payout by 142% over the past decade.
The stock has taken a hit recently due to rising service usage and lower-than-expected reimbursement rates for its Medicare Advantage members.
Medicare Advantage could become a little less lucrative for CVS Health, but a strong secular tailwind could help its results grow again. The Centers for Medicare and Medicaid Services noted that US national health care spending grew 4.1% in 2022 to $4.5 trillion. Over the decade ending in 2032, the government agency expects growth in total healthcare spending to accelerate to 5.6% annually.
The increase in health expenses seems to be an unstoppable trend. With leading positions in vertically integrated healthcare industries, CVS Health can reasonably be expected to deliver another decade of significant dividend increases.
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Cory Renauer has positions at CVS Health. The Motley Fool has positions and recommends Bristol Myers Squibb and Pfizer. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
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