High Yield Large-Cap Pharma: Recent Performance and 5-Year Dividend Growth Analysis

by: Zvi Bar

Many investors appreciate the pharmaceutical manufacturer industry for its potential to produce both income and long-term growth. Several of the large-cap drug makers offer above-average yields, and have records of growing their business and payouts over the long term.

Additionally, historically, many drug markers have acted resiliently during economic downturns and recessions. These companies are often considered defensive stocks. Many believe that this industry currently represents a strong long-term value, as several of these companies will continue to pay substantial dividends, benefit from emerging market growth, continue to develop new medical advancements and provide products that are so needed as to ensure continued demand even in the face of price increases due to inflation. These characteristics make many investors label this industry as recession proof (or at least recession resistant).

I did a search for large-cap (over a $10 billion valuation) drug manufacturers that trade within on U.S. exchanges and that have a 4% current yield. I located seven, composed of 4 U.S. companies and 3 European ADRs. Below is an analysis of their 2011 and 1-year performance, as well as 5-year dividend analysis for each.

1. AstraZeneca (NYSE:AZN)

  • Country: United Kingdom
  • 2011 Performance: 7.75%
  • 1-year Performance: -1.11%

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2. Bristol-Myers Squibb (NYSE:BMY)

  • Country: United STates
  • 2011 Performance: 8.72%
  • 1-year Performance: 12.9%

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3. Eli Lilly (NYSE:LLY)

  • Country: United States
  • 2011 Performance: 8.27%
  • 1-year Performance: 7.87%

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4. GlaxoSmithKline (NYSE:GSK)

  • Country: United Kingdom
  • 2011 Performance: 9.89%
  • 1-year Performance: 15.83%

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5. Merck (NYSE:MRK)

  • Country: United States
  • 2011 Performance: -0.83%
  • 1-year Performance: -2.06%

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6. Pfizer (NYSE:PFE)

  • Country: United States
  • 2011 Performance: 12.5%
  • 1-year Performance: 32.47%

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7. Sanofi-Aventis (NYSE:SNY)

  • Country: France
  • 2011 Performance: 21.1%
  • 1-year Performance: 23.51%

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Over the last year, these 7 companies have mostly outperformed the market. Not counting their dividends, four of the seven are up double digits, and two appreciated over 20%, while only two are down (MRK and AZN), though neither is down more than its dividend paid out. See the 1-year equity performance chart, below:

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Additionally, so far within 2011, six of the seven have gained between 7% and 22%, with the only depreciating stock (MRK) being down less than one percent, not counting dividends. All are up if dividends are added. See the 2011-to-date equity performance chart, below:

These large-cap pharmaceutical makers have acted well during this volatile last year. Investors who selected these equities as conservative, value-driven and/or income oriented options are broadly happy with their performance.

Additionally, though many of these companies appreciated considerably over the last year, about half have not recently raised their dividends, or only did so after earlier slashing them to a greater extent than they were subsequently raised. As a result, it appears likely that several of these companies will institute increases in the coming quarters. Nonetheless, this group already provides an income investor a yield comparable to a 30-year treasury, with far greater prospects of capital appreciation.

Disclaimer: This article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.