Different stocks appeal to different kinds of investors. For instance, Bristol Myers Squibb(NYSE: BMY) can provide stability, safety, and predictability as it is in the business of developing lifesaving drugs and has a portfolio full of them. On the other hand, Microsoft(NASDAQ: MSFT) is a stock growth-oriented investors might be interested in. The tech giant has multiple potential growth avenues to exploit over the long run.
Bristol Myers and Microsoft can both appeal to dividend investors despite their many differences. Let's find out why these stocks are great picks for income-seekers.
1. Bristol Myers Squibb
Bristol Myers is going through that dreaded period pharmaceutical companies fear. Its sales are dropping due to biosimilar competition for some of its former best-selling medicines. In the second quarter, the drugmaker's revenue declined by 6% year over year to $11.2 billion. Its adjusted earnings per share dropped to $1.75, which was 9% lower than the year-ago period.
That's why Bristol Myers is struggling on the stock market, with its shares down by nearly 15% since the year started. The good news? Bristol Myers looks dirt cheap with a forward price-to-earnings (P/E) ratio of about 8, while the average for the pharmaceutical industry is 15.5. Still, that is of little importance unless there are brighter days ahead for the company.
Thankfully, it has a portfolio of newer medicines whose sales are growing fast and should continue to do so. In the second quarter, Bristol Myers' new product lineup generated $862 million in sales, 79% higher than the year-ago period. This number will likely soar in the coming few years. Bristol Myers expects between $10 billion and $13 billion in revenue from these products by 2025 and about $25 billion by 2030.
That may seem ambitious, but many of these medicines are set to earn label expansions, and, of course, Bristol Myers will add new ones, too. To give a couple of examples, Bristol Myers Squibb is currently awaiting the approval of repotrectinib, a brand new potential treatment for non-small-cell lung cancer, from the U.S. Food and Drug Administration.
In late June, it earned approval for Camzyos as a treatment for symptomatic obstructive hypertrophic cardiomyopathy (a heart disease) in Europe. Camzyos first got the green light in the U.S. last year. Meanwhile, some of Bristol Myers' older medicines are doing just fine. That's the case with cancer medicine Opdivo, which keeps pumping out regulatory nods.
Bristol Myers will be fine over the long run, and the company's dividend makes the stock even more attractive. It currently offers a yield of 3.72% compared to the S&P 500's average of 1.54%. It has increased its dividends by a decent 62.86% over the past decade. The company's cash payout ratio is just under 44%, which means it generates more than enough cash to cover its dividends -- and then some.
Bristol Myers remains an excellent pick for income investors focused on the long term.
Microsoft is one of the most recognizable companies in the world, but the brand doesn't exactly evoke "dividends" in the minds of many. Perhaps it is the tech giant's dividend yield of just 0.84%, which some investors have a problem with in this regard. But despite its low yield, Microsoft's dividend profile looks attractive. The company has raised its payouts by 196% in the past 10 years.
Moreover, Microsoft's strong business is more than capable of sustaining many more payout raises. Microsoft is best known for its computer operating systems (OS) and suite of productivity tools, an area where it is still the undisputed leader. As of January, it held a 74.2% share of the desktop OS market. Microsoft benefits from switching costs and a strong brand name within this segment, both powerful economic moats.
However, the company's best growth opportunities arguably lie elsewhere. Microsoft made a big bet in artificial intelligence (AI) by backing OpenAI, the company behind ChatGPT. This could give Microsoft a leg up in the exciting generative AI market, which, according to some estimates, should register a compound annual growth rate of 35.6% through 2030. Microsoft is looking to challenge Alphabet's dominance in online search by powering its search engine, Bing, with AI.
Whether or not this initiative pays off, the most important point is that AI gives Microsoft major growth opportunities. The company is also a leader in cloud computing. It is second only to Amazon in this fast-growing industry. Some may worry that Microsoft's top-line growth has slowed lately. In its latest period -- the fourth quarter of its fiscal year 2023, which ended June 30 -- it reported revenue of $56.2 billion, just 8% higher than the year-ago period.
Its EPS increased by 21% year over year to $2.69. However, things should pick up for the tech company once the economy rebounds. And while the company's forward P/E of 29 looks high, in my view, that is justified for a longtime tech leader with a solid moat and plenty of fuel for growth left ahead. Microsoft is an excellent stock to buy for growth and income-oriented investors.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has positions in Amazon.com. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Bristol Myers Squibb, and Microsoft. The Motley Fool has a disclosure policy.