Drug companies have been revenue generating machines for long. They’re in the enviable position of being able to profit from the aging of America by providing a product that will be in continuous demand. While those revenue streams can hit some peaks and troughs due to things like drug patent expiration (something that Pfizer Inc. (NYSE:PFE) will be dealing with shortly with its big name drug Lipitor), the big pharma companies are usually able to develop a pipeline of new drugs to keep those revenue streams flowing.
Because of that ability to generate cash flow, health care stocks are known for returning some of that capital to shareholders in the form of dividends. Some of the biggest drug makers in the market today are offering some impressive dividend yields to go along with their potential for growth.
Here are four great examples.
As mentioned above, Pfizer Inc. (NYSE:PFE) is facing some issues with its drug pipeline. Lipitor is now off patent and the company is still looking for the next big drug to replace its revenue stream. Pfizer Inc. (NYSE:PFE) recently delivered a disappointing first quarter, but if the company delivers on some of the late stage drugs it has in development, revenue could begin looking solid again sooner rather than later.
Pfizer is looking to gain footing in the diabetes market with the development of ertugliflozin and the company is poised to bring its anticlotting drug Eliquis to the market shortly. Plus, it remains to be seen how Pfizer Inc. (NYSE:PFE)’s decision to sell Viagra online will affect sales.
Pfizer Inc. (NYSE:PFE) is one of the biggest drug companies out there and its 32% operating margin is among the best in the industry. Buy and hold investors may experience some short-term bumps on the road but a 3.10% dividend yield is a nice consolation as they wait.
Emerging markets like China are proving to be a big boon for Merck & Co., Inc. (NYSE:MRK) as evidenced by the region’s 6% year over year growth. That growth is helping soften the blow of an overall 9% year over year revenue decline that’s been affecting the company’s bottom line.
While the company has experienced some recent setbacks — diabetes drug Januvia had lackluster sales while asthma drug Singulair saw its patent expire — there’s reason for optimism. The company has agreements in place with Pfizer Inc. (NYSE:PFE) for the development of another diabetes drug and with Bristol-Myers Squibb on a hepatitis C drug that could end up proving to be quite lucrative.
In the meantime, the company maintains a reasonable P/E ratio of 12 and a solid 3.80% dividend yield.
With pharmaceutical companies, you often hear the term “patent cliff” that refers to the lost revenue associated with drugs going off patent. Most companies face it to some degree, but Eli Lilly & Co. (NYSE:LLY) may face a steeper cliff than most.
The company will lose patents on two of its major drugs in 2013 — anti-depression drug Cymbalta and insulin drug Humalog. Those two drugs resulted in combined revenue of almost $7.5 billion last year.