The Labor Department recently reported an 8.3% year-over-year increase in Consumer Price Index (CPI) in August. The hot inflation data is expected to strengthen the Fed’s determination to keep raising rates, thereby increasing the odds of a recession.
The Healthcare sector is considered one of the most reliable sectors, providing a portfolio buffer when equity markets turn uncertain and volatile. Drug makers, medical device companies, and pharma companies primarily benefit from an inelastic consumer demand regardless of the economy’s situation. The global pharmaceuticals market is expected to reach $1.59 trillion in 2022 and grow at a 7.7% CAGR to $2.14 trillion in 2026.
Moreover, with an uncertain economic outlook, it is justified to look for reliable drug stocks that provide consistent dividends, ensuring steady income generation.
Given this backdrop, dividend-yielding drug stocks with fundamental strength for consistent growth, Merck & Co., Inc. (MRK) and Bristol-Myers Squibb Company (BMY), could be relied on for significant risk-adjusted returns.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company offering prescription medicines, vaccines, biological therapies, and animal health products. The company operates through Pharmaceuticals and Animal Health segments.
On September 12, 2022, MRK, Seagen Inc., and Astellas Pharma Inc. announced results from the Phase 1b/2 EV-103 clinical trial. The results demonstrated a 64.5% confirmed objective response rate in patients treated with an investigational combination of enfortumab vedotin and pembrolizumab.
On September 11, 2022, MRK announced KEYTRUDA, Merck’s anti-PD-1 therapy, plus chemotherapy continued to demonstrate a survival benefit and durable responses versus chemotherapy alone in two five-year exploratory analyses of pivotal Phase 3 studies as first-line treatment for metastatic non-small cell lung cancer (NSCLC).
In the fiscal 2022 second quarter ended June 30, 2022, MRK’s sales increased 28% year-over-year to $14.59 billion. The company’s non-GAAP net income grew 204.2% from the year-ago quarter to $4.74 billion. During the same period, its non-GAAP EPS amounted to $1.87, up 206.6% year-over-year.
On July 26, MRK declared the quarterly dividend of $0.69 per share, which would be paid out on October 7. The company pays a $2.76 per share dividend annually, which translates to a 3.2% yield on the current price. This compares to its 4-year average yield of 2.94%. The current dividend payout ratio is 35.45%.
The company’s dividend payouts have grown for 11 consecutive years.
Analysts expect MRK’s revenue for the current year to come in at $58.6 billion, indicating an increase of 20.3% year-over-year. The company’s EPS and dividend are expected to increase 22.7% and 8.4% year-over-year to $7.38 and $2.83, respectively. Furthermore, MRK has topped the consensus EPS estimates in all but one of the trailing five fiscals.
The stock has gained 20.6% over the past year to close the last trading session at $86.95.
MRK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MRK has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #5 among 167 stocks in the Medical – Pharmaceuticals industry. Click here to see MRK’s POWR Ratings for Stability and Momentum.
Bristol-Myers Squibb Company (BMY)
BMY discovers, develops, licenses, manufactures, and markets biopharmaceutical products globally. It offers solutions for hematology, oncology, cardiovascular, immunology, fibrotic, neuroscience, and Covid-19 diseases.
On September 14, 2022, BMY declared a quarterly dividend of $0.54 per share, which would be paid out on November 1. The company pays a $2.16 per share dividend annually, which translates to a 3.04% yield on the current price. This compares to its 4-year average yield of 3.03%. The current dividend payout ratio is 27.33%. The company’s dividend payouts have grown for five consecutive years.
On September 9, BMY announced that the U.S. Food and Drug Administration (FDA) approved Sotyktu™(deucravacitinib) for treating adults with moderate-to-severe plaque psoriasis who are candidates for systemic therapy or phototherapy. The therapy has the potential to become the new standard of care for people with moderate-to-severe plaque psoriasis.
On August 17, BMY acquired Turning Point Therapeutics, Inc. (TPTX) in an all-cash transaction. With this acquisition, the company might expand its precision oncology portfolio and gain a pipeline of investigational medicines designed to target the most common mutations associated with oncogenesis, including repotrectinib.
For the second quarter of fiscal 2022 ended June 30, BMY’s revenue increased 1.6% year-over-year to $11.89 billion. During the same period, net earnings attributable to BMS increased 34.7% year-over-year to $1.42 million, while its EPS increased 18.4% year-over-year to $1.93.
Analysts expect BMY’s revenue for the fiscal year 2023 (ending December 2023) to increase 3.4% year-over-year to $47.73 billion. The company’s EPS for the next year is expected to grow 6.8% from the previous year to $8.02. Moreover, BMY has an impressive earnings surprise history, as it has topped the consensus EPS estimates in each of the trailing five fiscals.
The stock has gained 13.5% over the past year to close the last trading session at 70.47.
BMY’s POWR Ratings reflect this promising outlook. The company’s overall A rating translates to Strong Buy in our proprietary rating system. The stock also has an A grade for Value and a B for Growth and Quality. It is ranked #4 of 167 stocks in the same industry.
To see additional POWR Ratings for Sentiment, Stability, and Momentum for BMY, click here.
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MRK shares were unchanged in after-hours trading Thursday. Year-to-date, MRK has gained 16.06%, versus a -17.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...
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