Every portfolio must have pharmaceutical exposure to provide stability. It is easier said than done to identify great dividend-yielding stocks that enhance your portfolio through a solid, regular income stream. There are a wide variety of factors to consider, from the size of the company, the regularity of dividend payments, performance indicators and, for many income investors, the most important is the size of the dividend yield. Let's examine fundamentals of five stocks on my radar which can provide stable income to your investments. The list includes five competitors GlaxoSmithKline, Bristol-Myers Squibb Company, Teva Pharmaceutical Industries Limited, Novartis AG, and Eli Lilly & Co.
GlaxoSmithKline (NYSE:GSK): GlaxoSmithKline is trading a forward twelve month price to earnings ratio of 12.59, price to earnings growth ratio of impressive 1.1 and high price to book ratio of 19.43. These numbers are attractive. GlaxoSmithKline's return on equity is a solid 37.58% and dividend yield is a healthy 5.00%. GlaxoSmithKline has a relatively strong pipeline with at least 10 new drugs scheduled to complete phase III trials in 2012. Several have blockbuster potential in the $1 billion plus range. One thing I really like about GlaxoSmithKline is that the attempt to restructure the R&D effort is proving to be a success. The over the counter market for GlaxoSmithKline is another plus with strong portfolio with star products like Sensodyne, Nicorette and Horlicks. The profitability of the company includes profit margins of 12.07%, operating margins of 37.06% and has low volatility with a beta factor of 0.63. Glaxo has also done a good job of partnering with innovators like XenoPort, in drug development. Above factors demonstrate that the firm will be able to maintain the dividend payout in the future and makes it an excellent candidate for stability with growth.
Bristol-Myers Squibb Company (BMY): Bristol-Myers Squibb is trading at a trailing twelve month price to earnings ratio of 16.93, price to earnings growth ratio of negative 356.75 and price to book is 3.36. These numbers do not look attractive. Bristol-Myers Squibb's return on equity is a surprising 30.17% and the dividend yield is 4.00%. Its well-defined strategy of uniquely combining the strengths of a traditional pharmaceutical company and biotech companies is a huge plus. Its global reach and integrated commercial and manufacturing capabilities along with the advantages of agility and entrepreneurial thinking are the hallmarks of its success. Bristol-Myers Squibb has a very strong balance sheet with around $7 billion in cash and share buyback program of $3 billion also hints that it is undervalued.
Eli Lilly & Co. (LLY): Eli Lilly is trading at a healthy trailing twelve month price to earnings ratio of 8.95, price to book ratio of 2.77 and return on equity of impressive 33.2%. Eli Lilly's dividend yield of 5.20% is also good with increasing dividend history. Its positive R&D investments and positive year on year net income also provides comfort for long term investment. The profitability of the company includes profit margins of 19.07%, operating margins of 27.06% and has low volatility with a beta factor of 0.54. Eli Lilly has been really strong over the past year with an 18% increase in market price, and this performance is supported by its cash flows of over $5 billion in past three fiscal years. Eli Lilly is a good and safe dividend-yielding bet for future.
Teva Pharmaceutical Industries Limited (TEVA): Teva is trading at a good trailing twelve month price to earnings ratio of 11.85, an excellent price to earnings growth ratio is 0.82 and price to book ratio of 1.54. Teva's return on equity, compared to its competitors, is meager 13.60% and the dividend yield is 2.30%. The year 2012 can be a good year for Teva and is gaining momentum and interest among investors. The biggest news was the announcement regarding the new CEO, which could boost Teva's strategy to reposition itself. With a very strong position in the global generics market, and with a blockbuster biotech drug like the leading MS treatment, Copaxone, and the forefront of coming biosimilars, Teva continues to execute on its game plan to dominate pharmaceuticals. It can provide handsome returns in future.
Novartis AG: Novartis is trading at a good trailing twelve month price to earnings ratio of 13.05, an excellent price to earnings growth ratio of 2.09 and price to book ratio of 2.07. Novartis' return on equity is low at 15.60% and dividend yield of 3.50%. Novartis faces tougher competition and difficult times ahead, announced a restructuring plan to lay off 2000 jobs, mostly in Switzerland and the U.S. Novartis' balance sheet is a bit more complicated, as it shows dwindling cash reserves along with inflated short-term and long-term debt levels. This is probably not a good thing for the company, Working capital items have also been increasing, which is not necessarily positive for the company either. Its balance sheet shows that it is bleeding cash and is dangerously running low. On the positive side, Novartis maintains positive revenue, net income, and EPS growth and it maintains an impressive patent portfolio that is unrivaled by many of its competitors. Based on the risks involved, it would be better to wait to enter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.