Currently yielding a large 4.50% and trading at a reasonable 15 times earnings, Bristol Myers-Squibb (NYSE:BMY) has been a good place for income investors to park their cash and get paid. There is significant worry, however, in the minds of investors.
While the company showed solid growth in the second quarter of 2011, the company is facing patent expiration for Plavix (its heart attack and stroke prevention medication) in May of 2012, and Avapro (for hypertension). While sales won't stop completely, revenues are going to be slashed by a wide margin once these lose patent protection. Seeking Alpha's "Smith on Stocks" provides this chart of estimated sales for all of BMY's products:
|(millions)||FY 2009||FY 2010||FY 2011||FY 2012||FY 2013||FY 2014||FY 2015|
|Worldwide In-Line Sales|
|Mature Prodicts and Other||3,536||3,056||$2,887||2,767||2,725||2,685||2,645|
|Total In-Line Worldwide Sales||$18,808||$19,484||20,525||16,308||14,086||14,128||13,439|
|New Products Worldwide|
|Total New Products Worldwide||$0||$0||407||955||1,658||2,532||3,625|
The chart includes revenues from their (potential) blockbuster drug Yervoy (for metastatic melanoma, a very deadly form of skin cancer).
Despite a strong pipeline to at least partially replace the inevitable loss in global revenues from two of their current blockbusters, BMY will definitely see some earnings weakness over the next couple of years. The question, however, is whether Bristol-Myers can maintain, or even grow their current dividend.
Based on free cash flow, BMY's current dividend payout is a very reasonable and seemingly sustainable 50.2%. Even with a decline in revenues over the next two years (before an uptick in 2013), BMY appears very likely to maintain that yield.
Cost cutting and fewer investments should also free up cash to pay to shareholders, so they may even be able to grow the dividend on pace with inflation. If they can pull this off, the share price fluctuation is irrelevant over the next couple of years as investors will be paid handsomely for their sacrifice of rapid earnings growth. Down the line, BMY's pipeline should return their earnings to a period of solid growth, and the dividend should follow right along.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.