Health and Healthcare

Why Dividend-Paying Big Drug Companies May Be the Best Stocks to Own Now

Lee Jackson

Published: August 27, 2020 8:50 am

If you had gone off the grid in early January with no communication and just came back, you would see all the market indexes making new highs, but the levels are close to when you left. In reality, investors experienced officially the largest 100 day rally ever for the S&P 500 Index, up more than 50%. The problem for investors now, despite the all-time highs, is the market is very overbought, the economy is a mess, millions of people are unemployed or furloughed, and the United States is at staggering debt levels, which as a percentage of gross domestic product are closing in on World War II levels.

Investors usually could retreat to the bond market, but the 30-year U.S. Treasury bond pays a minuscule 1.41% coupon, which barely keeps up with taxes and inflation. One good area to look at now is large-cap pharmaceuticals, many of which are involved in the search for a COVID-19 vaccine.

We screened our 24/7 Wall St. research database looking for dividend-paying large-cap pharmaceutical stocks that are rated Buy at major Wall Street firms. These five look like outstanding ideas for nervous investors looking for income and a degree of safety. While all are rated Buy at top firms, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

AbbVie

This is one of the top pharmaceutical stock picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.

One of the biggest concerns with AbbVie is what might happen eventually with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. The company was concerned, so last June it announced that it has agreed to pay $63 billion for rival drugmaker Allergan, the latest merger in an industry in which some of the biggest companies have been willing to pay a high price to resolve questions about their future growth. The purchase officially closed in May of this year.

AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge.

Shareholders receive a 5.00% dividend. RBC has a $127 price target for the shares, which is higher than the Wall Street consensus target of $108.56. AbbVie stock closed trading on Wednesday at $94.35 a share.

Bristol-Myers Squibb

This remains a solid pharmaceutical stock to own long term. Bristol-Myers Squibb Co. (NYSE: BMY) is a global pharmaceutical company focused on discovering, developing, licensing and marketing chemically synthesized drugs or small molecules and biologics in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV), oncology, neuroscience, immunoscience and cardiovascular.

The company reported strong second-quarter results that were largely ahead of Wall Street consensus, given the ongoing recognition of Celgene revenue. Bristol-Myers bought Celgene last year in a massive $74 billion acquisition. The posted quarterly earnings of $1.63 per share exceeded the Wall Street consensus estimate and were higher than the per-share earnings reported in the same period a year ago.

Shareholders receive a 2.96% dividend. The BofA Securities price target is $80, while the consensus target is $72.08. Bristol-Myers Squibb stock closed at $61.43 on Wednesday.

This company also has solid upside potential, and it is a great pick for conservative accounts. Eli Lilly and Co. (NYSE: LLY) is a global health care company with numerous core products in a number of primary-care pharmaceutical markets. The company generates revenues from its pharmaceutical product and animal health segments.

The product portfolio includes Zyprexa (for schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder), Erbitux (cancer) and Alimta (chemotherapy). Eli Lilly also has a strong presence in the diabetes market.

In July, Eli Lilly raised its full-year profit forecast after increased demand for its Trulicity diabetes drug helped it beat second-quarter profit expectations. The company raised its 2020 adjusted earnings forecast to between $7.20 and $7.40 per share, from its prior range of $6.70 to $6.90 per share.

Shareholders receive a 1.98% dividend. The $186 Goldman Sachs price objective is well above the $165.07 consensus target price. Eli Lilly stock was last seen trading at $149.26.

Merck

This remains a leading health care stock pick for conservative investors. Merck & Co. Inc. (NYSE: MRK) offers therapeutic and preventive agents to treat cardiovascular issues, type 2 diabetes, asthma, nasal allergy symptoms, allergic rhinitis, chronic hepatitis C virus, HIV-1 infection, fungal infections, intra-abdominal infections, hypertension, arthritis and pain, inflammatory, osteoporosis, male pattern hair loss and fertility diseases.

The company also provides neuromuscular blocking agents for use in surgery, anti-bacterial products for skin and skin structure infections, cholesterol modifying medicines, non-sedating antihistamine and vaginal contraceptive products.

Merck purposely was cautious during the start of the pandemic when it came to vaccine development, but it is now slowly but surely ramping up its efforts into the clinic. The company, which has good form in creating a new vaccine against a sweeping threat after gaining approval for its Ebola vaccine, said in its second-quarter update that via its recent buyout of Themis, it is plotting a third-quarter start for human testing of its preclinical V591.

Merck shareholders receive a 2.85% dividend. Goldman Sachs recently upgraded it to Buy and raised the price target to $105. The consensus price target is $95.00, and Merck stock closed at $85.54 per share.

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Pfizer

This top pharmaceutical stock made a gigantic splash in 2016 with a $5.5 billion purchase of Anacor Pharmaceuticals. Pfizer Inc. (NYSE: PFE) is a global biopharmaceutical company with a diversified portfolio of products and pipeline candidates, and it is one of the largest pharmaceutical companies in the world as measured by market capitalization and revenue.

The company’s commercial operations are bifurcated into two business segments: Innovative Health, which focuses on the development and commercialization of medicines and vaccines, as well as consumer health care products, in various therapeutic areas, and Essential Health, which offers branded generic products, biosimilars, anti-infectives and other products without marketing patent protection.

Pfizer’s vaccine based on cutting-edge RNA gene technology showed promising potency against the new coronavirus in an early trial, scientists report. The new vaccine, which for now is just called BNT162b1, elicited a robust immune response in participants, which increased with dose level and with a second dose, according to a news release from the journal Nature, which published the trial data earlier this month.

Investors receive a 4.00% dividend. RBC has a $43 the price objective. The consensus target is at $41.85. The shares closed most recently at $38.05.

These five mega-cap pharmaceutical giants have come way in from their 52-week trading highs and are offering investors outstanding entry points. With very solid and dependable dividends, all five are good additions to growth portfolios looking for steady income streams.