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5 High-Yielding Dividend Stocks That Are Bargain Buys

Motley Fool - Thu Jun 29, 9:00AM CDT

If you're in search of bargain stocks to buy, the healthcare industry is a great place to start looking. The tech sector has been attracting more attention of late due to the hype around artificial intelligence (AI).

But that has left some pretty good deals overlooked in the healthcare sector. Among them are Johnson & Johnson(NYSE: JNJ), AbbVie (NYSE: ABBV), Bristol Myers Squibb (NYSE: BMY), Amgen (NASDAQ: AMGN), and Pfizer (NYSE: PFE) -- all of which pay dividends and offer great value.

CompanyDividend YieldForward Price-to-Earnings RatioPercentage Above 52-Week Low
Johnson & Johnson2.9%15.39%
Bristol Myers Squibb3.5%8.03%

Source: Yahoo Finance. Data and calculations as of June 26.

Those yields are all higher than the S&P 500's average yield of 1.6%. And within their sector, those stocks are bargains; the average healthcare stock trades at a forward price-to-earnings (P/E) multiple of around 18. But there are more reasons than that why each of them is potentially a good buy right now.

1. Johnson & Johnson

Johnson & Johnson is a healthcare beast with a market capitalization of $425 billion. The company recently spun off its consumer health business, so it has lost a bit of its diversification. But with a renewed focus on its pharmaceutical and medical device businesses, its looks like an underrated growth stock.

The company's operations are normally highly profitable with net margins of 19% in 2022. While its financials will look different now that it has hived off its slower-growing consumer health business, I wouldn't expect them to get worse. J&J also looks like a bit of a safer buy as it appears to be inching closer to settling its talc-asbestos lawsuits. Its latest offer of a $9 billion settlement is getting strong support from plaintiffs' lawyers.

This is one of the better dividend stocks you can own in healthcare. While there are higher yields out there, investors won't find better a track record for dividend growth in the industry. Johnson & Johnson has raised its payouts for a remarkable 61 straight years.

2. AbbVie

AbbVie is a bit of a contrarian buy these days -- investors are worried about the loss of patent exclusivity for its top-selling drug, Humira. Biosimilars of Humira are already on the way, and the company expects the drug's sales to fall by a mammoth 37% this year.

There's no denying the significance of Humira. The biologic drug, which is prescribed for a host of conditions, generated more than $21 billion in revenue last year, accounting for more than one-third of the company's revenue of $58 billion.

But AbbVie has been preparing for this eventuality. It has two newer immunology drugs, Skyrizi and Rinvoq, that between them are now approved for most of the conditions Humira treats.

The company forecasts that together they can reach higher peak sales than Humira. And by 2027, it says they could combine for $21 billion in revenue. So while the short term looks troubling for AbbVie, in the long run, the business should be OK.

Like Johnson & Johnson, AbbVie is a Dividend King with a strong 51-year track record of increasing its payouts (including its time as part of Abbott Laboratories from which it was spun off in 2013). And its 4.4% yield at the current share price tops the five stocks on this list.

3. Bristol Myers Squibb

Another drugmaker that's facing patent cliffs is Bristol Myers Squibb. Although its business is diverse, the looming losses of patent protection for Eliquis, Revlimid, and Opdivo are concerning. Together, they combined for $30 billion in revenue last year, which is close to two-thirds of the company's $46.2 billion top line.

However, investors need to remember that the company's sales of these drugs won't instantly go to zero when generic versions hit the market, and it still has years to develop new products or seek out acquisitions, as it has in the past, to bolster its business. It's one of the riskier stocks here due to its patent cliffs, but investors can get it at a particularly good valuation -- among the five stocks being discussed here, Bristol Myers Squibb stock trades at the lowest forward price-to-earnings ratio.

This is an established company that investors shouldn't be quick to throw in the towel on. With more than $27 billion in current assets on its books and the business generating more than $10 billion in free cash flow in each of the past three years, Bristol Myers Squibb has the resources to navigate its future.

4. Amgen

One company that hasn't been hesitant when it comes to dealmaking is drugmaker Amgen. In 2022, it acquired biopharma company ChemoCentryx for $3.7 billion, which brought the promising autoimmune product (and potential blockbuster) Tavneos into its portfolio.

It is also trying to acquire Horizon Therapeutics for around $28 billion. Through that deal, it would gain the thyroid treatment Tepezza, which could bring in more than $3.8 billion in annual revenue by 2028. The Federal Trade Commission filed a lawsuit to block the deal, however, saying it will hurt competition in the industry. But Amgen is optimistic that the deal will eventually go through.

If it doesn't, however, Amgen could still pursue other acquisitions with that money and look to upgrade its growth potential in other ways.

5. Pfizer

One of the most aggressive companies in the past few years with respect to acquisitions has been Pfizer. Revenue from its COVID-19 vaccine will decline, and the company is facing multiple patent cliffs. As a result, it has been working on ways to significantly improve its growth prospects.

Pfizer is looking to acquire Seagen for a whopping $43 billion; it says that deal could help it produce better cancer drugs in the future. However, that purchase could also face some challenges from the FTC. Through a combination of acquisitions and its in-house R&D pipeline, Pfizer believes it can add $25 billion to its annual sales by 2030.

Pfizer is facing a challenging transition period, but its balance sheet provides it with a robust cushion. As of the end of March, it held cash and short-term investments totaling just under $20 billion.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol-Myers Squibb, Pfizer, and Seagen. The Motley Fool recommends Amgen and Johnson & Johnson. The Motley Fool has a disclosure policy.

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