Dividend investing is a proven way to earn above-average long-term returns. That’s why top dividend stocks often attract large crowds of investors and trade at a premium. However, it’s possible to find quality income stocks that are reasonably — or even attractively — valued, perhaps because they have faced challenges from which they will recover, but the market has yet to catch on.
Let’s consider two dividend stocks that fit this description: Pfizer (NYSE: PFE) and Bristol Myers Squibb (NYSE: BMY). For dividend seekers with $1,000 to spare — that isn’t saved for bills or emergencies — here’s why it would be a great idea to invest in these stocks.
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1. Pfizer
In 2022, Pfizer became the first biopharmaceutical company to reach $100 billion in annual sales, mostly due to its dominance in the coronavirus market. But it’s been pretty much downhill from there. The drugmaker was unable to sustain solid revenue from its COVID-19 products as vaccination and hospitalization rates declined. Also, Pfizer will face important patent cliffs by the end of the decade. The company’s anticoagulant Eliquis, which it shares the rights to with Bristol Myers, will lose patent exclusivity.
It’s not surprising, then, that the company has lagged broader equities recently. However, the next five years could be transformational for the pharmaceutical giant as it advances important pipeline candidates. Pfizer has a deep pipeline, and multiple “shots on goal” should allow it to launch brand-new, highly successful products, eventually, even amid occasional clinical setbacks.
The company’s oncology pipeline looks particularly attractive, with candidates such as PF’4404, an investigational medicine in a newer class of cancer drugs, bispecific antibodies. Unlike traditional monoclonal antibodies, the current standards of care in oncology, which target one disease marker, bispecific antibodies can target two at the same time, often making them more effective at finding and destroying cancer cells. Pfizer thinks PF’4404 could be a pipeline-in-a-drug, earning approval across several market niches.
The medicine is currently in phase 3 studies and could deliver important clinical wins in the coming years. And it’s just one of many promising candidates in Pfizer’s oncology pipeline. The company is also making solid progress with its weight loss pipeline, with some candidates currently in phase 3 studies. Meanwhile, even though Pfizer’s financial results haven’t been great, some of its products are performing well and should help push sales higher for the foreseeable future. The company’s bladder cancer drug Padcev and its respiratory syncytial virus vaccine, Abrysvo, are good examples.
Pfizer’s strong pipeline and resilient underlying business (despite some headwinds) mean it is unlikely to cut its dividend. It currently offers a forward yield of 7.1% and has increased its payouts by 51.3% over the past decade. Lastly, the stock is trading at just 8.2x forward earnings, versus an average of 18.2 for healthcare stocks. This blue chip dividend stock looks like a strong buy at current levels. And with $1,000, investors can buy 42 shares of Pfizer.
2. Bristol Myers Squibb
After facing some patent cliffs in recent years, Bristol Myers has gotten back on the right track. The company’s revenue is moving in the right direction again, albeit slowly. However, the pharmaceutical leader will face more patent cliffs by the end of the decade, notably for two of its best-selling drugs, Eliquis and Opdivo, a cancer medicine. Bristol Myers seems well-equipped to replace those two drugs and has already taken important steps in that direction, with the approval of a subcutaneous version of Opdivo that will contribute to its top-line well into the next decade.
Elsewhere, Bristol Myers is partnering with Johnson & Johnson (NYSE: JNJ) to develop Milvexian, a next-gen anticoagulant that aims to be just as effective as competitors while avoiding the bleeding risk associated with typical anticoagulants. Milvexian has received the Fast Track Designation from the U.S. Food and Drug Administration, a program that helps expedite the review and approval of drugs that treat serious conditions and address a high unmet need.
This suggests that the data so far indicate Milvexian could be just as good as advertised. Further, Bristol Myers is looking to get into the bispecific antibody market and is working on a promising candidate, pumitamig, with BioNTech (NASDAQ: BNTX). Expect solid progress from these (and other) candidates in the next couple of years. And in the meantime, even with the looming major patent cliffs, Bristol Myers has a portfolio of newer launches that are performing well and should eventually help replace older medicines.
The company isn’t at risk of cutting its dividend. Bristol Myers’ forward yield is 4.3%, and it has increased its payouts by 65.8% over the past decade. Finally, with the stock trading at 9x forward earnings, now is a great time to buy. $1,000 is good for 17 shares at the stock’s current price.
Should you buy stock in Pfizer right now?
Before you buy stock in Pfizer, consider this:
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Prosper Junior Bakiny has positions in Johnson & Johnson. The Motley Fool has positions in and recommends Bristol Myers Squibb and Pfizer. The Motley Fool recommends BioNTech Se and Johnson & Johnson. The Motley Fool has a disclosure policy.
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