The S&P 500 is up an incredible 25% over the past 12 months, but not every stock in the benchmark index participated in the rally. A handful of excellent health care stocks are down more than 25% from the highs they reached less than a year ago.
Actions of Pfizer (NYSE:PFE), Bristol Myers Squibb (NYSE:BMY)And CVS Health (NYSE:CVS) are declining, but their dividend programs remain strong. Here’s why investors can count on these high-yielding stocks to continue growing their payouts for at least another decade.
1.Pfizer
Pfizer shares have fallen about 31% over the past 12 months. The pharmaceutical company’s development pipeline is producing new drugs, but the stock market can’t recover from how quickly sales collapsed for Comirnaty and Paxlovid, a COVID vaccine and antiviral treatment, respectively.
Despite its declining sales, Pfizer has steadily increased its dividend payout every year since 2009. At recent prices, it offers a whopping 6.1% yield, and investors can reasonably expect at least another decade of consecutive annual increases.
Combined first-quarter sales of Comirnaty and Paxlovid fell more than 60% year-over-year to $2.4 billion. Management is planning further cuts for these drugs, but the worst is over and dividends are well funded. It expects adjusted earnings per share to be between $2.15 and $2.35, which is higher than it needs to meet its dividend commitment currently set at $1.68 annualized by action.
Pfizer announced first quarter sales up 11% year-on-year if Comirnaty and Paxlovid are excluded. With nine new drugs approved by the Food and Drug Administration (FDA) in 2023 alone, investors can expect a return to growth that could last throughout the coming decade.
2. Bristol Myers Squibb
Bristol Myers Squibb shares are down about 35% from their peak last summer. At its beaten price, the big pharma stock offers a nice yield of 5.7%.
The stock has been under pressure lately because management cut its adjusted earnings outlook to a range between $0.40 and $0.70 from the previous forecast of $7.10 to $7.40 per action.
This devastating earnings adjustment is primarily the result of the company’s $14 billion acquisition of Karuna Therapeutics, which the company completed in March. The big pharma company will take a one-time charge of about $12 billion, but the asset it acquired, KarXT, could be worth it.
The FDA is currently 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 no later than September 26, 2024.
Bristol Myers Squibb shares trade at a low valuation of around 7 times free cash flow. Investors who buy into struggling pharmaceutical stocks now and hold on have a good chance of seeing market-beating gains over the long term.
3. CVS Health
We are all familiar with CVS Health’s leading retail pharmacy chain. What you may not realize is that she has one of the big three pharmaceutical services manager businesses and Aetna, a leading health insurer.
Shares of CVS Health are down about 27% from their high point in January. At recent prices, the healthcare conglomerate yields 4.4%, which is unusually high for a stock known for its rapid dividend growth. Vertical integration of different healthcare businesses has helped CVS Health increase its dividend 142% over the past decade.
The stock has been battered recently due to growing service usage and lower-than-expected reimbursement rates for its Health Insurance Advantage members.
Medicare Advantage could become a little less lucrative for CVS Health, but a strong secular tailwind could help its bottom line return to growth. The Centers for Medicare and Medicaid Services saw U.S. national health spending increase 4.1% in 2022 to $4.5 trillion. Over the decade ending in 2032, the government agency expects total health spending growth to accelerate to 5.6% per year.
The increase in health care costs seems to be an unstoppable trend. With leading positions in vertically integrated healthcare industries, CVS Health can reasonably be expected to provide another decade of significant dividend increases.
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Cory Renauer holds positions at CVS Health. The Motley Fool holds positions and recommends Bristol Myers Squibb and Pfizer. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
3 High-Yielding S&P 500 Dividend Stocks Down More Than 25% to Buy Now and Hold for at Least a Decade was originally published by The Motley Fool
