Big pharmaceutical stocks have been losing their shine among investors seeking high-growth investments. The sector is witnessing fewer new blockbuster drugs along with the headwinds from efforts to limit healthcare spending globally. Despite this, the pharma sector presents impressive investment opportunities for dividend investors.
Discussed below are three healthcare companies that have a positive past five-year EPS growth and dividend yield of over 4%.
* As of April 9, 2013. Source: Yahoo Finance.
AstraZeneca (NYSE:AZN) is a British/Swedish multinational pharmaceutical and biologic company based in London with operations in more than 100 countries. The company makes drugs for major disease areas including cancer, cardiovascular, gastrointestinal, infection, neuroscience, respiratory and inflammation. In January this year, the company announced that the group sales have declined by 7% to about $28 billion in 2012, resulting in 38% lower pre-tax profits of $7.7 billion. These unimpressive results were mainly due to the loss of exclusivity across a number of its key brands with formerly patent-protected medicines accounting for 85% of the revenue dip. The pharma company has also been widely criticized for its lack of plans for a new product pipeline to compensate for significant current and looming patent expirations.
However, to boost its revenues, the company still has 71 projects in the clinical phase of development, with another 13 either approved, launched or filed. The drug major also has agreements with Amgen (NASDAQ:AMGN), the world's largest biotechnology company, to sell five pipeline products, and with Bristol-Myers Squibb (NYSE:BMY) to develop and sell several non-insulin diabetes drugs. Compared to its peers, AstraZeneca has been underperforming the last few years, leaving investors with discouraging share prices. But the company has a good history of paying dividends and is still committed to maintaining a progressive dividend policy. Since 2003, the dividends from the company have increased by almost four times. The 2013-14 dividend forecast from the company in pound sterling is approximately 191 pence per share. Additionally, after six months of review, the company has now come up with a return to growth strategy, which includes a restructuring plan, acquisition plan and a focus area plan. However, the return to growth plan will take time to give the expected results.
PDL BioPharma (NASDAQ:PDLI) sold all of their exclusive drug and product lines in 2007 to focus strictly on being a research and development biotech firm. The company leases their technology and processes to other pharmaceutical companies and presently owns a patented process of developing humanized antibodies useful for the treatment of cancer and other diseases. For 2012's fourth quarter, PDLI's earnings exceeded Wall Street expectations with a 27% rise in quarterly earnings, owing to higher royalties from Herceptin and Avastin sales. Total revenues for the period were up by 18.2% to $86.05 million. Note that royalty revenues for the fourth quarter of 2012 are based on third-quarter product sales by PDL's licensees. Net cash from operating activities in 2012 was $210.2 million, compared with $169.8 million in 2011. The company's cash, cash equivalents and investments were also lower than the previous year.
PDLI has a big task ahead to find a solution to a grave problem. The antibody humanization technology on which the company relies for most of its royalties, will have its patent expire by the end of 2014. Therefore, management needs to find another avenue for growth very quickly, keeping in mind the quality of such a replacement as well.
PetMed Express (NASDAQ:PETS) distributes prescription and nonprescription medicines to pet owners, mainly through online channels. The company is in a good sector considering $50 billion is spent on pet care every year in the United States. However, owing to increased competition from online vendors such as Amazon (NASDAQ:AMZN), the company's top-line growth has slowed a bit. But PetMed plans to boost its sales by expanding product offerings and advertising, and selling more higher-margin items. PetMed is also undertaking cost reduction efforts, which are beginning to pay off. The company's EPS has improved 3% to 63 cents for the nine months ended Dec. 31, 2012. For the next five years, analyst expects the company to grow by 5%.
For the third quarter, PetMed Express posted a net income of $4.6 million, or $0.23 per share, compared to $3.9 million, or $0.19 per share in the comparable quarter last year. Net sales for the quarter stood at $49.61 million, compared with $50.52 million in the year-ago quarter. The earnings from the company were above expectations, while its revenues were slightly below. PetMed has an impressive balance sheet with no debt (yes, no debt at all) and generates an annualized cash flow of about $28.5 million, which is more than sufficient to cover $12 million in dividend payments. The company enjoys a dividend yield of about 3% and has raised its dividend 50% in three years. This past December, shareholders were rewarded with a special $1 one-time dividend.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Black Coral Research is a team of writers who provide unique perspective to help inspire investors. This article was written Aman Jain, one of our Senior Analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.
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