With a forward yield nearing 4%, Bristol Myers Squibb (BMY -0.77%) may seem like a great income buy among pharmaceutical stocks. Alongside a moderately high yield, this healthcare stock also has a nearly 20-year dividend growth track record, and trades at a low valuation.
Yet while at first glance Bristol Myers Squibb seems to check off all the right value and dividend boxes, it's worthwhile to give the pharmaceutical stock a closer examination, to look for any red flags. Specifically, any risk that this stock could become a "yield trap" for your portfolio.
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The big reason behind Bristol Myers Squibb's high yield and low valuation
Bristol Myers Squibb stock has been on a tear, surging nearly 35% since September 2025. However, this latest wave of outperformance has come following an extended slump. This is a key reason why, even after the run-up, this stock appears very cheap, at just under 10 times forward earnings.
NYSE: BMY
Key Data Points
For most of this decade, shares have languished, largely due to a major patent cliff as several flagship drugs start to lose patent exclusivity. This includes the upcoming 2028 U.S. patent exclusivity losses for Eliquis and Opdivo. Having already experienced the loss of patent exclusivity for Eliquis in the European Union (EU) this year, analyst forecasts still call for earnings to drop from $6.95 to $6.56 per share next year. 2028 could bring more declines, as additional patents expire.
Why the patent cliff isn't a dealbreaker
Not only is the patent cliff a "known known." Management has already begun addressing it through cost-cutting measures and acquisitions. Rumors of a merger with AstraZeneca proved false, but a spate of smaller acquisitions in 2024 and 2025 leaves the company well-positioned in cardiovascular, immunology, and oncology.
Couple this with the stock's forward payout ratio of around 40%, and it's clear "yield trap fears" are overblown. The company appears well-positioned for a further comeback. Given the potential for further dividend growth and upside, Bristol Myers Squibb is a solid buy among healthcare stocks.
