There are fewer healthcare stocks with high yields than you might think. At least that's the case depending on your definition of "healthcare stocks" and "high yields." If you think a high-yield stock should boast a minimum 3% yield and that healthcare stocks should exclude real estate investment trusts (REITs) that specialize in healthcare, you could count all of the stocks that meet the criteria on your fingers and toes with some to spare.
But of the relatively few stocks that do meet that criteria, there are several that look like smart picks right now. Here's why AbbVie (NYSE: ABBV), Pfizer (NYSE: PFE), and Sanofi (NYSE: SNY) are three healthcare stocks with dividends yielding more than 3% that appear especially attractive.
AbbVie ranks as one of my favorite stocks for several reasons. Its dividend is definitely one of them. The big biotech's yield currently stands north of 3.5%. Even better, AbbVie has a long track record of increasing its dividend. The company uses less than 60% to fund the dividend, so it's in a good position to hike the dividend more in the future.
Investors wanting growth along with income should find AbbVie quite appealing. Wall Street analysts project the biotech will grow earnings by around 14% annually over the next five years. AbbVie not only claims the top-selling drug in the world with Humira, but it also has one of the best pipelines in the biopharmaceutical industry. Several of AbbVie's candidates could be blockbusters if approved, including endometriosis and uterine fibroids drug elagolix and cancer drug Rova-T.
Even with its strong dividend and growth potential, AbbVie stock isn't priced expensively. Shares currently trade at only 11 times expected earnings.
The biggest downside for AbbVie is the potential threat of biosimilar competition for Humira. However, the company's executives think that they will be able to fend off U.S. rivals through 2022 by defending an extensive array of patents still in effect for the drug. If AbbVie is successful in this effort, it should give the company plenty of time for its promising pipeline to produce new winners.
Pfizer's dividend yield of 3.83% looks even more attractive than AbbVie's. Although the big pharma company only has a seven-year streak of dividend increases, there's no doubt that Pfizer prioritizes its dividend as a key component of its appeal to investors. Pfizer's strong cash flow should allow the dividends to keep on flowing in the years to come.
Cancer drug Ibrance and blood thinner Eliquis continue to stand out as Pfizer's top blockbusters with strong sales growth. The company could have several others step up to the plate in the future. It received approval for atopic dermatitis drug Eucrisa in December 2016. The drug could reach peak annual sales of $2 billion. In addition, Pfizer expects 25 to 30 approvals over the next five years, of which up to 15 could be blockbuster drugs. The company thinks that as much as half of those potential blockbusters could receive approval by 2020.
Pfizer stock isn't quite as inexpensive as AbbVie, but its valuation still appears attractive. The drugmaker's shares trade at 12 times expected earnings.
Loss of exclusivity for legacy drugs remains the most significant challenge for Pfizer. Declining sales from these drugs will continue to weigh down its growth. Still, though, Wall Street projects Pfizer to grow earnings by close to 6% annually over the next few years -- significantly higher than the company's performance in recent years.
Sanofi's dividend yields 3.37% right now. While that's a little lower than both AbbVie's and Pfizer's yields, it's still enticing. The French drugmaker has a spotty record of dividend increases, but Sanofi seems to now be in solid shape to raise its dividend in the future.
One key reason why Sanofi is in a good position now is the success of long-acting insulin product Toujeo. Sales for Toujeo soared nearly 65% in the first half of 2017 over the prior-year period. Sanofi's multiple sclerosis drugs Aubagio and Lemtrada are also performing very well, with combined sales up more than 32% year over year in the first half of 2017. Its pipeline includes 47 clinical programs, with 13 either awaiting approval or in late-stage development.
Thanks largely to the solid results from its diabetes and multiple sclerosis franchises, Sanofi claims the best-performing stock of the three on our list, with shares rising more than 20% year to date. As a result, Sanofi stock isn't valued quite as attractively as AbbVie or Pfizer, with shares trading at 14 times expected earnings.
Like Pfizer, Sanofi faces headwinds from biosimilar and generic competition for some of its older drugs. The company's generics business segment has also struggled in the U.S. and Europe. Despite these concerns, Sanofi looks to be a good pick for long-term investors seeking a solid dividend.
10 stocks we like better than PfizerWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Pfizer wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 1, 2017