Major drug manufacturers are generally very profitable and pay rich dividends. In this article, I tried to determine which of the eight top major drug manufacturers, traded in the U.S., is the most attractive for dividend-seeking investors.
I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most important factors for dividend-seeking investors. Of course, it is also essential that a company has enough earnings growth prospects to maintain increasing dividend payments.
The eight stocks are: Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Merck & Co. Inc. (NYSE:MRK), Sanofi (NYSE:SNY), GlaxoSmithKline plc (NYSE:GSK), Eli Lilly and Company (NYSE:LLY), Bristol-Myers Squibb Company (NYSE:BMY) and AstraZeneca PLC (NYSE:AZN). All the data for this article were taken from Yahoo Finance and finviz.com on March 03.
The table and the charts below present the top eight major drug companies, their last price, the market cap, the forward annual dividend rate, the forward yield, the payout ratio and the annual average dividend rate of growth for the past five and ten years.
The last chart emphasizes the consistency of raising dividend payments during the last five and ten years. The chart clearly shows that only JNJ, SNY and AZN have raised their payouts significantly each year.
AZN pays dividends twice per year in February and in August, and SNY pays just once annually in May.
The charts below present the trailing P/E, the forward P/E, the average annual earnings growth estimates for the next 5 years, the price-to-sales ratio and the price-to-book-value ratio for the eight companies.
The charts above clearly show that the forward P/E of LLY and BMY is relatively high, and among the eight drug companies only JNJ, SNY, GSK and BMY have enough earnings growth prospects to maintain increasing dividend payments.
Among the eight companies, only three companies; JNJ, SNY and AZN have a long-term track record of rising dividend payments by more than 5% annually. Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. Companies that regularly increase dividends are generally more stable. Increasing dividends is the assurance that dividend income retains its purchasing power over time.
Among these three companies AstraZeneca has, by far, the highest forward annual yield - 8.36%. But AstraZeneca's earnings growth prospects are not good, the average annual earnings growth estimates for the next 5 years is negative -4.0%, and it is not certain that it will be able to maintain such a high dividend rate.
The two other companies Johnson & Johnson and Sanofi have quite good earnings growth prospects; the average annual earnings growth estimates for the next 5 years is at 6.37% for JNJ and at 6.0% for SNY. The dividend growth rate over the past five years was at 8.0% for JNJ and at 9.07% for SNY, and for the past ten years was at 11.49% for JNJ and at 16.10% for SNY. The forward annual dividend yield is at 3.18% for JNJ, and the payout ratio is at 62%. The forward annual dividend yield is at 3.60% for SNY, and the payout ratio is at 68%.
In my opinion, Johnson & Johnson and Sanofi are the best choices among the major drug companies I reviewed for dividend-seeking investors, due to their good earnings and dividend growth prospects.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.