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The big U.S. drug companies look eerily alike. Pfizer, Merck, Eli Lilly and AbbVie (formerly Abbott) are all expanding revenues between very little and not at all, a pattern that is expected to persist. They have clean balance sheets. Dividend yields are 3 per cent to 3.5 per cent, and dividend payouts amount to 40 per cent or 50 per cent of net profits. The valuations, varying from just over 13 times forward earnings (Merck) and just under 15 times (AbbVie), are the highest in several years – though it should be kept in mind that earnings multiples are hitting multi-year highs across plenty of other sectors.

All four companies have solidly outperformed the market through the last leg of the rally, extending back to the autumn of 2011. This makes sense, given that defensive stocks of all sorts have been favoured.

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The interesting exception is Bristol-Myers Squibb. It has long commanded a premium price-to-earnings ratio; the multiple now sits at 21. And while it still offers one of the highest dividend yields in the group, its payout ratio – the portion of this year's expected earnings that will go to paying the dividend – is higher than the others, at more than 70 per cent. Investors are willing to pay up, and accept a thinner comfort margin around its dividend, for two reasons.

Bristol has executed very well, controlling costs, spinning off non-core assets at good prices and using product partnerships to spread risk. Second, its above-average pipeline, highlighted by the just-approved cardiovascular drug Eliquis and the late-stage cancer drug Nivolumab, has kept growth expectations high. But the time to deliver is arriving. Early Eliquis sales figures will arrive in the coming quarters and key data on Nivolumab are expected soon. Investors who have shunned the safety of the crowd and bet on leadership will soon know whether they have been bold or foolhardy.

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