The S&P 500 is up as much as 25% over the past twelve months, but not every stock in the benchmark index has participated in the rally. A handful of great healthcare stocks are down more than 25% from the highs they reached less than a year ago.
Shares of Pfizer (NYSE:PFE), Bristol Myers Squibb (NYSE:BMY)And CFS health (NYSE: CVS) have fallen, but their dividend programs are still strong. This is why investors can be confident that these high-yield stocks will continue to increase their payouts for at least another decade.
1. Pfizer
Pfizer shares are down about 31% over the past twelve months. The drug company’s development pipeline is churning out new drugs, but the stock market can’t get over how quickly sales collapsed for Comirnaty and Paxlovid, a COVID vaccine and an antiviral treatment, respectively.
Despite declining sales, Pfizer has steadily increased its dividend payout every year since 2009. At recent prices, it offers a huge 6.1% yield, and investors can reasonably look forward to at least another decade of consecutive annual increases.
Comirnaty and Paxlovid’s combined first-quarter revenue fell more than 60% year over year to $2.4 billion. Management predicts further declines for these drugs, but the worst is over and the dividend is well funded. It expects adjusted earnings per share to be between $2.15 and $2.35, which is more than needed to meet its dividend obligation currently set at $1.68 per share annually.
Pfizer reported first-quarter sales up 11% year over year when excluding Comirnaty and Paxlovid. With nine new drugs approved by the Food and Drug Administration (FDA) in 2023 alone, investors can expect a return to growth that could continue for the next decade.
2. Bristol Myers Squibb
Shares of Bristol Myers Squibb are down about 35% from the high they reached last summer. At the low price, the major pharmaceutical stocks offer a nice yield of 5.7%.
The stock has been under pressure lately as management lowered its adjusted earnings outlook to a range between $0.40 and $0.70, compared to the previous guidance of $7.10 to $7.40 per share.
That devastating earnings adjustment is largely the result of the company’s $14 billion acquisition of Karuna Therapeutics, which the company completed in March. The big pharma will have to book a one-time charge of about $12 billion, but the acquired asset, KarXT, could be worth it.
The FDA is now reviewing an application that could make KarXT the first new schizophrenia drug that does not directly block dopamine receptors. The agency is expected to announce an approval decision for KarXT on or before September 26, 2024.
Shares of Bristol Myers Squibb were trading at a low valuation of about seven times free cash flow. Investors who pick up and hold beaten-down pharmaceutical stocks now stand a great chance of long-term market gains.
3. CFS health
We all know the leading pharmacy chain CVS Health. What you may not realize is that the company owns one of the big three pharmacy benefit management companies and Aetna, a leading health insurer.
Shares of CVS Health are down about 27% from their January highs. At recent prices, the healthcare conglomerate offers a yield of 4.4%, which is unusually high for a stock known for rapid dividend growth. Through the vertical integration of several healthcare companies, CVS Health has been able to increase its dividend payout by 142% over the past decade.
The stock has recently fallen in value due to increasing use of services and lower-than-expected reimbursement rates for its Medicare Advantage members.
Medicare Advantage could become slightly less lucrative for CVS Health, but a strong secular tailwind could see the bottom line return to growth. The Centers for Medicare and Medicaid Services saw U.S. national health care spending growing 4.1% to $4.5 trillion in 2022. During the decade ending in 2032, the government agency expects overall health care spending growth to accelerate to 5.6% per year.
Rising healthcare costs appear to be an unstoppable trend. With leading positions in vertically integrated healthcare sectors, CVS Health can reasonably be expected to deliver another decade of significant dividend increases.
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Cory Renauer holds positions at CVS Health. The Motley Fool holds positions in and recommends Bristol Myers Squibb and Pfizer. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
3 High-Yield S&P 500 Dividend Stocks Down More than 25% to Buy Now and Hold for at Least 10 Years was originally published by The Motley Fool
