When it comes to investing in high-yield dividend stocks in the pharmaceutical space, two prominent names often come to mind: Pfizer (PFE -1.72%) and Bristol Myers Squibb (BMY 0.83%).
Both companies have a long history of paying dividends and offer attractive yields, making them popular choices among income-seeking investors. However, when comparing these two stocks, several factors should be considered to determine which one is the better high-yield dividend investment.
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Here is a head-to-head comparison of these popular healthcare dividend stocks.
Pfizer: A pharmaceutical giant with a solid dividend track record
Pfizer is one of the world's largest pharmaceutical companies by both annual sales and market capitalization. It has a diverse product portfolio spanning various therapeutic areas, including but not limited to oncology, inflammation, immunology, and vaccines.
The drugmaker has been paying dividends consistently for over 85 years and has a five year dividend growth rate of 2.5%. It offers a dividend yield of around 6.1% at current levels, which is well above the average 1.35% yield of the S&P 500.
One of Pfizer's key strengths is its robust pipeline and ability to successfully commercialize newly approved medications. The company has several potential blockbuster drugs in development targetting areas such as autoimmune disorders, cancer, infectious diseases, and rare indications.
At present, the drugmaker sports 37 candidates in late-stage development, underscoring the strength of its innovation engine. It also has a grand total of 113 candidates in the clinic across all stages of development, giving the drugmaker one of the deepest pipelines in the industry.
Still, Pfizer's upcoming bout with the patent cliff for key revenue generators like the anticoagulant Eliquis – which is co-commercialized with Bristol Myers Squibb – could negatively impact its growth profile over the balance of the decade. The company has been proactive about addressing this issue, but additional business development (acquisitions) may be required.
Business development tends to be a net positive for pharma companies over the long haul, but it can be costly. With a trailing 12-month payout ratio of 443%, Pfizer doesn't have a lot of room for error on this front if it intends to keep paying a sky-high yield.
The good news is that most, if not all, of this patent risk seems baked into Pfizer's shares at this point. After falling by over 32% in the past 12 months, the pharma titan's shares are trading at a mere 11.9 times forward earnings.
By comparison, the average forward multiple among big pharma stocks is around 17 and the S&P 500 trades at over 21 times forward earnings. Pfizer's stock is thus cheap.
Bristol Myers Squibb: A high-yield dividend stock with an attractive valuation
Bristol Myers Squibb, or BMS for short, is another well-established pharmaceutical company with a strong presence in the oncology, immunology, and cardiovascular care.
In its current incarnation, the drugmaker has been paying dividends since 1989 and sports a five year dividend growth rate of 5.6%.
Yield-wise, BMS offers a generous 5.8% cash distribution on an annualized basis, which is slightly lower than Pfizer's but still attractive compared to the broader market. The drugmaker's payout ratio is also considerably lower at 59.8%.
One of Bristol Myers Squibb's key strengths is its leadership in oncology, with a portfolio of highly successful cancer drugs such as Opdivo, Yervoy, and Revlimid. And like Pfizer, BMS sports a robust clinical pipeline, highlighted by potential future stars like schizophrenia drug KarXT.
Nonetheless, BMS is also facing a slew of patent expires this decade. As a result of this key risk factor, the drugmaker's shares are trading at under two times trailing sales right now. Most big pharma stocks trade well above this mark, putting BMS stock in bargain territory.
Which high-yield dividend stock is the better buy?
While both Pfizer and Bristol Myers Squibb are both attractive high-yield dividend stocks, Pfizer scans as the modestly better choice for income-seeking investors. Pfizer's slightly higher dividend yield and broad pipeline give it the edge in this comparison.
That said, BMS stock should perform admirably for investors with a long-term horizon. The company is a proven innovator and its rock bottom valuation, in terms of its price-to-sales ratio, should provide a layer of downside protection.
