Novartis (NYSE: NVS) is a major Swiss pharmaceutical company with a market capitalization of over $300 billion. His areas of focus are extensive, covering oncology, immunology, neuroscience, respiratory care, and cardiovascular, renal and metabolic diseases. With a strong operating history and diversified business,
The pharmaceutical giant could be an attractive stock for more conservative investors. Let’s dive in and take a closer look to see why.
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Novartis is one of the largest healthcare companies in the world. That alone doesn’t make it worth buying, but it speaks to the scale of the business and its historic success. A company doesn’t achieve this level of scale and industry dominance by accident. Management is doing something right and the pharmaceutical company has been operating at a high level for years.
In particular, Novartis currently offers investors an attractive dividend yield of 2.9%. This is well above the 1.1% of the S&P 500 index and the 1.7% average of the pharmaceutical sector.
The dividend has been increasing steadily, although not annually, for more than 20 years. Meanwhile, the payout rate is around 45%, which is totally reasonable. Notably, over the past two decades, the payout rate has never exceeded 100%. Basically, this is a relatively high-yielding pharmaceutical stock that has a fairly conservative dividend profile.
So from an overall perspective, Novartis is the kind of dividend stock that will let you sleep well at night. However, investors should not ignore the fact that it operates in a highly technical and competitive industry. The drugs it develops also have limited patent protection periods, so it has to constantly innovate. And right now, older drugs are losing share to generic competition, leading to plateauing revenues.
However, the company has also highlighted five drugs that are moving forward in the pipeline or getting new indications. Basically, Novartis appears to be on track to offset future revenue losses that come with patent expirations. In the end, that’s how the pharmaceutical industry works, and Novartis is used to weathering these ebbs and flows while rewarding dividend investors well for sticking around.
Novartis is not likely to be an interesting stock. This is purposeful, as management is clearly trying to build a sustainable, industry-leading business. If you invest for income and don’t want to worry about sleepless nights, these giant pharmaceutical stocks could be the perfect addition to your diversified portfolio of dividend stocks.