Two Stocks Recently Announced Dividend Increases Set to Take Effect in the Upcoming Year. Is Purchasing Warranted?
It's no walk in the park to locate stable and reliable dividend providers in the pharmaceutical sector. The main reason for this difficulty lies in the fact that drug development is often a laborious and expensive process that can devour substantial financial resources.
However, there are a handful of companies at the top of the industry that not only pay dividends regularly but have also been boosting them persistently lately. Among these, Bristol Myers Squibb (BMY, 0.41%) and Eli Lilly (LLY, 0.79%) have announced dividend increases recently, and since these enhancements mark their first dividends of 2025, investors still have an opportunity to benefit. Here's a brief overview of both dividend hikes, along with an evaluation of whether the companies behind them warrant inclusion in your investment portfolio.
1. Bristol Myers Squibb
Finding a pharmaceutical sector dividend as reliable as Bristol Myers Squibb's is no easy feat. The company has provided a shareholder distribution for an impressive 93 years and has raised this payout for an astonishing 16 consecutive years.
The latest increase, announced mid-December, includes a quarterly dividend lift of 3%, raising the total payout to $0.62 per share.
It's good that the company maintains its status as a consistent and growing payer, as its business performance hasn't been outstanding lately. Drugs such as Revlimid and Abraxane, which lost patent protection in 2022, dragged down the company's annual sales in both 2022 and 2023.
However, the company has seen some positive trends lately, including strong performances from Opdivo (a cancer drug with multiple indications) and its top-selling anticoagulant, Eliquis. Demand for Eliquis, in particular, has helped restart revenue growth; in its most recent reported quarter, total revenue increased 8% year over year to nearly $11.9 billion.
Despite this boost, Bristol Myers Squibb has taken on substantial debt to support its operations in recent times. As of its latest reported quarter, long-term borrowings topped $50 billion, a 50% increase from just one year prior. The company's debt-to-equity ratio climbed to 2.9 during this period, a high number not only for BMS but also in comparison to its competitors.
As patent exclusivity for Opdivo and Eliquis approaches the end of the decade, the company will be under pressure to develop or acquire new blockbuster drugs to fill the gap. While it has had success in both areas, neither path is simple or inexpensive, even for well-established pharmaceutical companies. As such, potential investors should approach this stock with caution.
Regardless, Bristol Myers Squibb is a generous dividend payer, along with its other attractive income stock qualities. The company's forthcoming dividend will be distributed on Feb. 3, 2025, to investors of record as of Jan. 3, 2025. At the most recent closing share price, the yield would be 4.4%.
2. Eli Lilly
Eli Lilly appears to have a more confident management team these days, highlighted by its latest 15% annual dividend increase, bringing the new quarterly payout to $1.50 per share.
What's more, the company's board of directors has authorized a new share repurchase program of $15 billion, three times the size of its previous program. The company expects the repurchase program to last for the next three years.
The venerable American company's market capitalization stands at an impressive $710 billion, making it the leader in the pharmaceutical industry. Much of this growth can be attributed to Zepetic, Eli Lilly's entry into the in-demand GLP-1 weight loss drug market.
Zepetic, Lilly's Mounjaro diabetes treatment approved for obesity, was cleared by the FDA in November 2023 and has been extremely popular from the start. Along with Mounjaro, these two drugs have driven the company's 20% year-over-year revenue growth in the third quarter, when it reported a top line of over $11.4 billion.
Lilly is far from a one-trick pony, with a diverse and deep portfolio including another cancer drug, Verzenio. The company also boasts a strong pipeline, with two investigational drugs (orforglipron and retatrutide) targeting diabetes and obesity that could potentially outperform Zepetic and Mounjaro.
Compared to the somewhat up-and-down performance of Bristol Myers Squibb, Lilly has some serious momentum driving it forward. It's already a formidable competitor in the nascent GLP-1 obesity market, and it generates substantial business from a variety of other drugs. The stock has been in high demand due to these positive factors, but I believe it has even more potential.
Lilly's new payout will be disbursed on March 10, 2025, to shareholders of record as of Feb. 14, 2025. Unfortunately, the stock's popularity has reduced the dividend yield; even with the latest 15% increase, the shares would pay out at a meager 0.8%.
In the context of investing, Bristol Myers Squibb and Eli Lilly have demonstrated their commitment to shareholders by increasing their dividends despite financial challenges. This strategic move to boost dividends leverages their strong financial positions, indicating a smart approach to money management and finance.
