Struggling Dividend Shares Worth Investing in and Maintaining
Investing in dividend stocks offers numerous benefits. Companies that continually enhance their dividend payouts generally possess robust foundations. Over time, consistently reinvesting dividends amplifies returns. And purchasing shares of top income-generating stocks during market dips is even more advantageous.
Two intriguing choices in this category are CVS Health (-2.76%) and Bristol Myers Squibb (-0.50%). Explore why these healthcare dividend stocks continue to appeal to long-term investors in spite of their challenges.
1. CVS Health
Sluggish revenue growth, irregular net income, and numerous guidance adjustments have made for a challenging two-year stretch for CVS Health's shareholders. The company faced reductions in revenue from COVID-19 test kits, while its Medicare Advantage (MA) division experienced unexpectedly high costs.
The third quarter was not much different; revenue increased by 6.3% year over year to $95.4 billion. The adjusted earnings per share fell to $1.09 from the $2.21 reported in the prior-quarter.
The decline in revenue from COVID-19 test kits was anticipated, but resolving the MA business concerns is crucial for winning back investor loyalty. CVS is working on this project, and its management has promised to restructure the business by next year, potentially leading to a 10% loss of MA members but also increased efficiency.
The positive aspect is that the company still enjoys key advantages. It provides diverse and complementary services throughout patients' healthcare journeys, from primary care to insurance and medications. With a strong presence in communities across the United States and decades of customer trust, its market position is difficult to displace. Provided it optimizes its MA business, CVS can sustain its performance over the long term.
CVS has demonstrated its versatility through recent developments. It recently established a subsidiary called Cordavis, focused on designing generic and biosimilar medicines, a promising niche given the large patient base it already serves and the widespread belief that drug prices are excessive. Demand for cost-effective alternatives should be high. Besides, various CVS services will be more sought after with an aging population.
What about the dividend? The forward yield is currently 4.8%, and it has boosted its payouts by 90% over the previous 10 years. Despite its challenges, CVS Health should maintain its dividend reliability for some time.
2. Bristol Myers Squibb
Bristol Myers Squibb recently experienced a sales slump following the loss of exclusivity for its top-selling cancer drug, Revlimid. Recovery has been achieved through new approvals. In the third quarter, revenue increased by 8% year over year to $11.9 billion – a strong performance for a pharmaceutical conglomerate. Adjusted EPS fell by 10% to $1.80 due to acquisition-related expenses, but it isn't a major concern.
While its performances have been decent, BMS faces some uncertainty, which explains why investors remain cautious. The pharmaceutical company will encounter patent cliffs for two of its best-selling medicines by the end of the decade: anticoagulant Eliquis and cancer drug Opdivo. Collectively, these two products contributed to 45% of the third-quarter revenue – a significant concern.
However, BMS has shown resilience during patent cliffs, as demonstrated by its successful overcoming of the Revlimid challenge. Its portfolio of new approvals features drugs with strong potential sales growth throughout the upcoming decade.
BMS also plans to develop new drugs. Its pipeline includes 51 compounds under development across various therapeutic areas and numerous potential indications. Continued progress in drug research is pivotal in ensuring a pharmaceutical company's longevity – and Bristol Myers Squibb excels in this area.
Its business should be robust enough to sustain its dividend program. The forward yield has surpassed 4.4%, and dividend payouts have increased by more than 62% over the past 10 years. Bristol Myers Squibb remains a solid income-generating stock.
- For those considering investing in dividend stocks, CVS Health remains an attractive option due to its consistent dividend payouts. Over the past 10 years, the company has boosted its dividends by 90%, and with a forward yield of 4.8%, investors can expect reliable income returns.
- Despite facing challenges such as a sales slump and patent cliffs, Bristol Myers Squibb continues to be a reliable income-generating stock. The pharmaceutical company has demonstrated resilience in the face of patent cliffs and has a robust pipeline of new drug approvals, ensuring sustained growth and reliable dividend payments with a forward yield of over 4.4%.
