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Pfizer vs Bristol Myers Squibb

When it comes to investing in high-dividend pharmaceutical stocks, two prominent names often come to mind: Pfizer (NYSE: PFE) And Bristol-Myers Squibb (NYSE: BMY).

Both companies have a long history of paying dividends and offering attractive yields, making them a popular choice among income-seeking investors. However, when comparing these two stocks, several factors should be considered to determine which is the better high-yield dividend investment.

A warning sign that says “High return, low risk.”A warning sign that says “High return, low risk.”

Image source: Getty Images.

Here’s a side-by-side comparison of these popular healthcare dividend stocks.

Pfizer: A pharmaceutical giant with a solid dividend balance sheet

Pfizer is one of the world’s largest pharmaceutical companies in terms of annual revenue and market capitalization. The company has a diverse product portfolio covering various therapeutic areas, including oncology, inflammation, immunology and vaccines, among others.

The pharmaceutical company has been paying dividends continuously for over 85 years and has a five-year dividend growth rate of 2.5%. At current levels, it offers a dividend yield of around 6.1%, which is significantly higher than the average yield of 1.35% of S&P500.

One of Pfizer’s key strengths is its robust product pipeline and ability to successfully commercialize newly approved drugs. The company has several potential blockbuster drugs in development targeting areas such as autoimmune diseases, cancer, infectious diseases and rare indications.

The pharmaceutical company currently has 37 candidates in the advanced development phase, which underlines the strength of its innovation engine. In addition, a total of 113 candidates are in the clinic at all stages of development, giving the pharmaceutical company one of the most extensive pipelines in the industry.

Nevertheless, Pfizer’s impending battle with the patent cliff for key revenue generators such as the anticoagulant Eliquis – which is co-marketed with Bristol Myers Squibb – could negatively impact the company’s growth profile for the rest of the decade. The company has been proactive in addressing this issue, but additional business development (acquisitions) may be required.

Business performance tends to be positive for pharmaceutical companies over the long term, but it can be costly. With a payout ratio of 443% over the past 12 months, Pfizer doesn’t have much room for error on that front if the company wants to continue paying a sky-high yield.

The good news is that most, if not all, of the patent risk now appears to be baked into Pfizer’s stock. After a decline of over 32% over the past 12 months, the pharmaceutical giant’s shares now trade at just 11.9 times forward earnings.

For comparison, the average price-earnings ratio of major pharmaceutical companies is about 17, and the S&P 500 trades at 21 times expected earnings, so Pfizer stock is cheap.

Bristol Myers Squibb: A high-dividend stock with an attractive valuation

Bristol Myers Squibb, or BMS for short, is another established pharmaceutical company with a strong presence in oncology, immunology and cardiovascular care.

In its current form, the pharmaceutical company has been paying dividends since 1989 and has a dividend growth rate of 5.6% over the last five years.

In terms of yield, BMS offers a generous annual payout of 5.8%. While this is slightly lower than Pfizer, it is still attractive compared to the overall market. The pharmaceutical company’s payout ratio is also significantly lower at 59.8%.

One of Bristol Myers Squibb’s key strengths is its leadership position in oncology, with a portfolio of highly successful cancer drugs such as Opdivo, Yervoy and Revlimid. And like Pfizer, BMS has a robust clinical pipeline highlighted by potential future stars such as schizophrenia drug KarXT.

Still, BMS faces a number of patent expirations this decade. Because of this important risk factor, the pharmaceutical company’s shares currently trade at less than two times revenue. Most large pharmaceutical company stocks are trading well above this mark, making BMS stock a bargain.

Which high-dividend stock is the better buy?

Although Pfizer and Bristol Myers Squibb are both attractive high-yield dividend stocks, Pfizer appears to be a slightly better choice for income-seeking investors. Its slightly higher dividend yield and broad pipeline give Pfizer the edge in this comparison.

Still, BMS stock should offer admirable performance for long-term investors. The company is a proven innovator and its rock-bottom valuation in terms of price-to-sales should provide some downside protection.

Should you invest $1,000 in Pfizer now?

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George Budwell holds positions in Pfizer. The Motley Fool holds positions in Bristol Myers Squibb and Pfizer and recommends these companies. The Motley Fool has a disclosure policy.

Better Dividend Stock with High Yield: Pfizer vs. Bristol Myers Squibb was originally published by The Motley Fool

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