When looking for the best dividend stocks, it’s usually best to not chase the highest dividend. Looking for quality dividend stocks with decent yields is usually a better recipe for large overall returns. Capital appreciation combined with a dividend can produce outsized returns.
Here are my top two picks for big pharma dividend stocks.
An oldie, but goodie
Technically, Johnson & Johnson (NYSE:JNJ) isn’t a pure pharma since it also sells medical devices and consumer health products, but it’s that diversity that makes it such a stable dividend stock.
The company has a history of raising its dividend for more than half a decade. In April, Johnson & Johnson (NYSE:JNJ) announced an 8.2% increase of its dividend, the 51st consecutive increase.
AbbVie Inc (NYSE:ABBV) is the only pure pharma in the Dividend Aristocrats club, which requires 25 consecutive years of dividend increases. The six-month-old company is in the index because it spun out of Abbott Laboratories (NYSE:ABT), which was in the index before the split. Even Abbott technically cut its dividend because it lost a substantial amount of its cash flow from AbbVie Inc (NYSE:ABBV)’s drug. Still, I think the S&P let them stay in the index simply because there are so few health care companies in the Dividend Aristocrats.
Johnson & Johnson (NYSE:JNJ) isn’t perfect. A series of recalls has stifled growth over the last few years. But just like the company recovered from the Tylenol tampering in the 1980s, Johnson & Johnson is starting to rebound. You can’t keep a century-old company down for too long.
You can go through each division of Johnson & Johnson (NYSE:JNJ)’s earnings statement looking for growth and areas of concern, but I think taking a holistic approach to analyzing the company, while counting on the history repeating itself, seems like a reasonable approach if you’re planning on buying and holding for years or even decades.
Bristol Myers Squibb Co. (NYSE:BMY) doesn’t have a long history of increasing its dividend, but it has been slowly raising its dividend over the last five years. The current dividend yield of 3.1% is pretty solid.
What I like about Bristol Myers Squibb Co. (NYSE:BMY), though, is its pipeline. There are six compounds in their final stage of clinical testing or already being reviewed by regulatory agencies. More importantly, the earlier stages are packed with a whopping 39 compounds!
Not all of those are going to pan out, but it only takes a few drugs to move the revenue needle, especially now that Bristol Myers Squibb Co. (NYSE:BMY) is smaller after losing exclusivity on Plavix.