Income-seeking investors usually don't think of the innovation-dependent pharmaceutical industry as a place to look for businesses with reliable cash flows.
Dividend seekers have a good reason to be cautious regarding drugmaker stocks. Profit driven by patent-protected market exclusivity can disappear in the blink of an eye after those patents expire.
These two giants of the pharmaceutical industry are made of enough moving pieces that when one blockbuster falls off a patent cliff, there's another on deck to keep the bottom line moving in the right direction.
Pfizer (NYSE: PFE) and AbbVie (NYSE: ABBV) offer dividend yields that are way above average, and both have more than a decade of consecutive annual dividend raises under their belts. Let's measure their strengths against the challenges they face to find out which is the better buy for income-seeking investors.
Pfizer has steadily raised its dividend payout by a respectable 61.5% over the past decade. That isn't very fast, but it doesn't have to shoot higher year after year to produce a satisfying return in the near term. At recent prices, the stock offers a big 6.2% yield.
Shares of Pfizer have fallen 56% from the peak they set a little over two years ago. The stock has been unusually volatile because of unprecedented sales growth for COVID-19 products that fell off a cliff in 2022 and continue to disappoint.
Pfizer began 2022 expecting $54 billion in combined sales of Comirnaty and Paxlovid. This year, the company expects the pair to generate just $8 billion in sales.
In 2023, declining sales of COVID-19 products pushed adjusted earnings down a frightening 72% to just $1.84 per share. The earnings contraction is disturbing, but Pfizer shouldn't have too much trouble meeting its dividend commitment, which is currently set at $1.68 annually.
In 2024, management says adjusted earnings will rise to a range between $2.05 and $2.25 per share, thanks partly to some recent investments.
Last year, Pfizer acquired cancer drug specialist Seagen for $43 billion in cash. This year, sales of Padcev, one of four commercial-stage therapies Pfizer picked up in the deal, could surge. The Food and Drug Administration recently approved it to treat newly diagnosed bladder cancer patients. Estimates vary, but most analysts expect Padcev sales to rocket from $52 million in 2023 to more than $7 billion by 2030.
The 3.6% dividend yield that AbbVie offers pales in comparison with Pfizer's, but long-term investors could come out way ahead if these two companies repeat their past performance. AbbVie's raised its payout a stunning 269% since 2014.
Like Pfizer, AbbVie reported earnings that shrank in 2023, but for different reasons. AbbVie's top-selling drug, Humira, lost patent-protected market exclusivity in the U.S. last January. As a result, sales of the former blockbuster sank 32% in 2023.
The company reported $12.2 billion in U.S. Humira sales last year, a great deal of which will be lost to biosimilar competition in 2024. AbbVie looks like a great dividend stock to buy regardless of the impending losses, because the investments it made with Humira profits in years past are paying off.
In 2019, AbbVie launched Rinvoq for arthritis and Skyrizi for psoriasis, with terrific success. The pair racked up a combined $11.7 billion in sales last year, which encouraged management to raise its sales outlook. Now the pair are expected to contribute more than $27 billion in revenue in 2027.
AbbVie is also reporting surprising success from its new migraine drugs. Annual sales of Ubrelvy and Qulipta are now expected to peak above $3 billion annually.
The next year or two won't be AbbVie's best in terms of dividend growth, but investors should know it isn't shy about rapid payout raises. The company's payout has risen a stunning 269% over the past 10 years.
The better buy now
If you're nearing retirement or retired already, Pfizer could be the right choice because of its higher yield. For everybody else, though, AbbVie looks like the better buy.
While it offers a lower yield up front, AbbVie appears capable of raising its dividend payout at a much faster pace than Pfizer over the long run.
Should you invest $1,000 in AbbVie right now?
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