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What are we looking for?

Pharma dividends powered by strong drug pipelines that extend well past COVID-19-related treatments.

The screen

The “shot in the arm” the sector received from COVID-19 vaccines and therapies has worn off along with demand. But that won’t slow the upward progress of top pharmaceutical stocks.

In fact, U.S. pharmaceutical giant Eli Lilly just jumped to an all-time high this week on a year-over-year revenue increase of 28 per cent – in part because of sales of diabetes drug Mounjaro, which is in high demand for off-label use as a weight-loss drug.

Looking ahead, top industry players have the kind of drug lineups and development pipelines needed for long-term success. The best of them also have strong cash flow to sustain heavy research spending and shareholder dividends.

Our search focused on global pharmaceutical leaders that have these quality markers and also pay dividends. We then applied our TSI Dividend Sustainability Rating System, which 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 to cover dividends;
  • one point if the company is an industry leader.

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, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Pharmaceutical stocks positioned for long-term success

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Mil.)1Y Ttl. Rtn. (%) Recent Price ($)
1Pfizer Inc.PFE-NHighest104.6199.8-28.835.48
2Johnson & JohnsonJNJ-NHighest102.8449.52.9172.39
3Merck & Co. Inc.MRK-NHighest102.7275.720.0108.73
4Novo Nordisk A/S (ADR)NVO-NHighest100.9415.375.3184.65
5Eli Lilly & Co.LLY-NHighest100.8518.976.0546.24
6GSK plc (ADR)GSK-NAbove Average95.272.2-0.635.05
7Bristol-Myers Squibb Co.BMY-NAbove Average93.7129.0-17.860.93
8Amgen Inc.AMGN-QAbove Average93.2142.34.7265.02
9Novartis AG (ADR)NVS-NAbove Average92.2217.519.0102.11

Source: Dividend Advisor.

*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.

Our TSI Dividend Sustainability Rating System generated nine stocks. Pfizer Inc., headquartered in New York, has industry-leading blockbusters and pipelines outside of its blockbuster COVID-19 vaccine. California’s Amgen Inc. and New York’s Bristol-Myers Squibb Co. each profits from its own slate of blockbuster drugs. Merck & Co., based in New Jersey, is a leader in oncology, acute-care and animal health drugs as well as vaccines. Johnson & Johnson, also headquartered in New Jersey, is now further divesting itself of consumer products to focus on its more-profitable medical devices and pharmaceuticals. Britain’s GSK PLC (formerly GlaxoSmithKline PLC) and Switzerland’s Novartis AG remain global giants. Indianapolis-based Eli Lilly and Co. is profiting from its Mounjaro diabetes and weight-loss drug, but also has a strong pipeline that includes its potential blockbuster drug donanemab for Alzheimer’s. And then there’s Denmark’s Novo Nordisk A/S, with its broad range of successful prescription drugs – including weight-loss leaders Ozempic and Wegovy. (Novo Nordisk’s and Eli Lilly’s low yields reflect their spectacular price jumps over the past year or so, largely driven by their weight-loss drugs.)

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

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