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What are we looking for?

Sustainable dividends from pharmaceuticals.

The screen

Drugs figure prominently in this week’s headlines with the legalization of recreational cannabis. While the coming demand for marijuana is uncertain, there’s no disputing the wide acceptance of pharmaceuticals.

Drug makers face huge costs to create products and gain regulatory approval. They also must recoup their investments before patents expire or better drugs emerge. Still, the best of them pump lots of profits into research to feed their drug pipelines. Many pharma companies also offset risk with revenue-rich consumer health-care products – from over-the-counter cough syrups to acne creams. All this sustains profits – and dividends.

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Our search started with U.S.-listed pharmaceutical stocks with blockbuster drugs and strong growth prospects. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated nine stocks. Pfizer Inc.’s top-sellers include Viagra, and it has an industry-leading pipeline. Merck & Co. Inc., Amgen Inc. and Bristol-Myers Squibb Co. all profit from blockbuster drugs. Johnson & Johnson supplements drug revenue with consumer products and medical devices. Britain’s GlaxoSmithKline PLC and Swiss-based Novartis AG are global giants. Eli Lilly & Co.’s spinoff of its animal-health unit lets it focus on humans. And then there’s AbbVie Inc.: Its FDA-approved, cannabis-based anti-nausea drug Marinol is just a small part of sales from a wide range of prescription drugs.

Select U.S.-listed pharmaceutical stocks

Ranking* Company Ticker Dividend Sustainability Rating Div. Yield (%) Points Market Cap (US$Bil)  Recent Price (US$) 1Yr Total Return (%) 
1 Pfizer Inc. PFE-N Highest 3.1 10 261.5 44.57 23.1
2 Merck & Co. Inc. MRK-N Highest 2.7 10 192.0 71.82 13.6
3 Johnson & Johnson JNJ-N Highest 2.6 10 366.4 139.46 -0.9
4 Eli Lilly & Co. LLY-N Highest 2.0 10 119.2 113.59 32.0
5 GlaxoSmithKline PLC (ADR) GSK-N Above Average 4.9 9 98.7 39.74 -2.7
6 AbbVie Inc. ABBV-N Above Average 4.2 9 139.2 92.27 0.1
7 Novartis AG (ADR) NVS-N Above Average 3.4 9 198.7 85.28 -1.2
8 Bristol-Myers Squibb Co. BMY-N Above Average 2.8 9 94.5 58.90 -8.2
9 Amgen Inc. AMGN-Q Above Average 2.6 9 131.0 202.77 8.9

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements. Source: Dividend Advisor.

We advise investors to do additional research on investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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