GlaxoSmithKline plc (ADR) (GSK), Novartis AG (ADR) (NVS): This Company’s Debt Might Be a Concern

But, while there might be indications of bright spots in Novartis AG (ADR) (NYSE:NVS)’ future, even if some of its fundamentals are not welcoming, the same cannot necessarily be said about AstraZeneca plc (ADR) (NYSE:AZN). Cautions were sounded earlier this year when Standard & Poor’s Ratings Service retained its rating on this company’s bonds at AA-, seven notches above “junk,” but lowered its outlook on these issues from stable to negative. The reason for this downgrade: Patents on some of its best selling pharmaceuticals — Seroquel IR, a treatment for schizophrenia; the heartburn drug Nexium; the cholesterol-lowering drug Crestor — are due to expire and sales might decrease as lower priced generics reach the market.

A Foolish conclusion

None of these three pharmaceuticals companies — Novartis AG (ADR) (NYSE:NVS), GlaxoSmithKline plc (ADR) (NYSE:GSK), AstraZeneca plc (ADR) (NYSE:AZN) — seem to be great picks on the basis of their fundamentals or necessarily on the basis of their prospects. But they do have one thing that might attract investors who are seeking a “secured” income flow in the form of dividends. The dividend yields for these three companies averaged over the past five years are: Glaxo (3.50%), Novartis (5.00%) and  AstraZeneca (3.1%).

These substantial dividends are at least somewhat typical of those paid by European stocks. And the differential between the dividends paid by these three pharmaceutical companies and the interest investors might earn from a Treasury bond or certificate of deposit can be significant. That is particularly the case if somebody has sufficient assets to invest and is counting on the income flow from these assets to fund their retirement. Another consideration: a strong dividend can work to stabilize a stock’s price, serving as an incentive for investors to hold them long term instead of selling them at the first slip.

Harriet Tramer Tramer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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