In this article, we discuss 12 best pharma dividend stocks to buy in 2023. You can skip our detailed analysis of the pharmaceutical sector and its outlook this year, and go directly to read 5 Best Pharma Dividend Stocks To Buy in 2023.
The pharmaceutical industry in the US is one of the largest in the world, representing roughly 50% of the global pharmaceutical sales revenue, as of 2020. The industry consists of a wide range of players, including large multinational corporations, mid-sized and small companies, and biotech startups. The COVID-19 pandemic had a significant impact on the pharmaceutical industry, as some companies dealing in vaccines or treatments for the virus experienced increased demand for their products. The trend of spending on Covid-related drugs continued through 2022. Some of the biggest pharma companies, like Pfizer Inc. (NYSE:PFE), Gilead Sciences, Inc. (NASDAQ:GILD), and Merck & Co., Inc. (NYSE:MRK), among others, are estimated to have generated approximately $100 billion in revenues in 2022, according to a report by Reuters.
The current inflationary period has brought defensive stocks into the limelight as these stocks do not get affected by economic cycles. Pharmaceutical companies are often considered to be defensive as they deal in products that are considered essential for the maintenance of health and the treatment of illnesses, and demand for these products may remain relatively stable even during a recession. The sector also delivered positive returns to shareholders last year, when the S&P 500 recorded its worst annual performance since 2008. The NYSE Arca Pharmaceutical Index gained 4.91% from December 2021 to December 2022, compared with a 19.4% decline in the S&P 500 during the same period. The index returned 3.71% in the past 12 months.
Though pharma stocks delivered solid returns in 2022, the sector had a comparatively slow year pertaining to merger and acquisition (M&A) deals compared with the previous years. One of the main reasons for this slowdown was that drugmakers acquired companies with authorized and tested drugs and products, instead of companies with products in clinical trials. Moreover, the economic headwinds from inflation and higher interest rates also hindered the deals last year. The deal value in the biopharma sector fell 42% in 2022, compared with 2021, as reported by Ernst & Young. It was not the case in the past as large-cap pharma companies closed 178 deals from 2016 to 2020 with a total value of over $452.3 billion. However, analysts are positive about the activity gaining momentum this year. PwC expects the total M&A deals to value between $225 billion and $275 billion across all sectors in 2023. Readers can also have a look at 25 Biggest Pharmaceutical Companies in the World to know more about the sector’s outlook.
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Our Methodology:
We scanned Insider Monkey’s database of 943 hedge funds as of Q4 2022 and selected dividend companies from the pharma industry that are involved in the research, development, manufacturing, and marketing of drugs and other medical treatments. From that list, we picked the top 12 companies from the pharma sector with the highest number of hedge funds and ranked them in ascending order of these funds having stakes in them.
12 Best Pharma Dividend Stocks To Buy in 2023
12. Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
Number of Hedge Fund Holders: 42
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is a retail holding company that owns pharmacy chains and other pharmaceutical manufacturing companies. In March, Deutsche Bank maintained its Buy rating on the stock with a $46 price target, highlighting the company’s recent quarterly earnings.
In fiscal Q2 2023, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) reported roughly $35 billion in revenues, which showed a 7.6% growth from the same period last year. The company’s operating cash flow for the quarter came in at $745 million and its free cash flow stood at $677 million. Its cash flow and strong dividend growth make it one of the best dividend stocks on our list.
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) currently pays a quarterly dividend of $0.48 per share and has a dividend yield of 5.40%, as of April 17. The company has been rewarding shareholders with increased dividends for the past 47 years. Pfizer Inc. (NYSE:PFE), Gilead Sciences, Inc. (NASDAQ:GILD), and Merck & Co., Inc. (NYSE:MRK) are some other best dividend stocks from the pharma sector on our list.
At the end of Q4 2022, 42 hedge funds in Insider MOnkey’s database owned stakes in Walgreens Boots Alliance, Inc. (NASDAQ:WBA), up from 39 in the previous quarter. These stakes have a collective value of $1.08 billion. Ken Griffin and Cliff Asness were some of the company’s leading stakeholders in Q4.
11. Cardinal Health, Inc. (NYSE:CAH)
Number of Hedge Fund Holders: 50
Cardinal Health, Inc. (NYSE:CAH) is an American multinational healthcare company that specializes in the distribution of pharmaceuticals and medical products. The company currently offers a quarterly dividend of $0.4957 per share for a dividend yield of 2.50%, as of April 17. It has raised its dividends for 36 years in a row, which makes it one of the best dividend stocks on our list.
In fiscal Q2 2023, Cardinal Health, Inc. (NYSE:CAH) reported revenue of $51.4 billion, up 13.2% from the same period last year. The company’s cash position remained strong during the quarter as it generated $597 million in operating cash flow and its free cash flow came in at $439 million.
As of the close of Q4 2022, 50 hedge funds tracked by Insider Monkey reported having stakes in Cardinal Health, Inc. (NYSE:CAH), up from 45 a quarter earlier. These stakes have a consolidated value of over $1.3 billion.
Ariel Investments mentioned Cardinal Health, Inc. (NYSE:CAH) in its Q3 2022 investor letter. Here is what the firm has to say:
“Additionally, distributor of pharmaceutical and medical products Cardinal Health, Inc. (NYSE:CAH) advanced in the period as leadership changes were viewed to be a positive for shares. Management provided a new profit outlook for Fiscal 2023 and announced an improvement plan for the medical segment. We are encouraged by these changes and think CAH’s underlying fundamentals and competitive advantages around preventative maintenance screenings and medication management will continue to improve. We believe valuations of health care companies like CAH that focus on cost optimization and promote technological efficiency across the supply chain will be rewarded over the long term.”
10. McKesson Corporation (NYSE:MCK)
Number of Hedge Fund Holders: 54
McKesson Corporation (NYSE:MCK) is a New York-based healthcare company that distributes pharmaceuticals and provides other healthcare services to its consumers. In the third quarter of 2022, the company posted revenue of $70.5 billion, which showed a 2.8% growth from the same period last year. For the first nine months of the fiscal year, it returned $216 million to shareholders in dividends, which makes it one of the best dividend stocks on our list.
In March, Citigroup initiated its coverage on McKesson Corporation (NYSE:MCK) with a Buy rating and a $420 price target, naming the stock its top pick. The firm also appreciated the company’s solid cash generation.
McKesson Corporation (NYSE:MCK) has been raising its dividends consistently for the past six years. It currently pays a quarterly dividend of $0.54 per share and has a dividend yield of 0.60%, as recorded on April 17.
As per Insider Monkey’s Q4 2022 database, 54 hedge funds owned stakes in McKesson Corporation (NYSE:MCK), up from 51 in the preceding quarter. These stakes have a collective value of over $4.27 billion.
Broyhill Asset Management mentioned McKesson Corporation (NYSE:MCK) in its Q4 2022 investor letter. Here is what the firm has to say:
“Shares of McKesson Corporation (NYSE:MCK) gained 50% for the twelve months ending December 2022, as opioid-related litigation concerns, which weighed on the stock for years, took a back seat to strong operating performance. When we first established the position in 2018, we explained that, “Although headlines remind us daily of growing threats to the business, the actual probability of this business dramatically changing in the next five years is much lower than the perceived probability. We are simply betting that the future might not be as bad as the price suggests.”
Consensus FY22 and FY23 EPS estimates at the time were around $17 – $18 per share. The company reported ~ $24 in earnings in FY22, and is on pace for $26 in FY23, even as consensus estimates for the broader market were repeatedly revised lower. We continued to trim our position throughout the year as shares rerated higher from ~ 8x earnings in FY18 to ~ 16x earnings at recent highs.”
9. Amgen Inc. (NASDAQ:AMGN)
Number of Hedge Fund Holders: 60
Amgen Inc. (NASDAQ:AMGN) is a California-based multinational biopharmaceutical company. In the fourth quarter of 2022, the company reported revenue of $6.8 billion, which beat Street estimates by $30 million. For FY22, it generated over $8.8 billion in free cash flow, compared with $8.4 billion in 2021.
On March 7, Amgen Inc. (NASDAQ:AMGN) declared a quarterly dividend of $2.13 per share, which was in line with its previous dividend. It is one of the best dividend stocks on our list as it has raised its payouts every year since 2011. The stock’s dividend yield on April 17 came in at 3.43%.
Wells Fargo upgraded Amgen Inc. (NASDAQ:AMGN) in March to Overweight with a $265 price target.
Amgen Inc. (NASDAQ:AMGN) was a popular stock among hedge funds in Q4 2022, as 60 funds in Insider Monkey’s database owned stakes in the company, up from 53 in the previous quarter. The collective value of these stakes is over $2.2 billion.
8. Gilead Sciences, Inc. (NASDAQ:GILD)
Number of Hedge Fund Holders: 64
Gilead Sciences, Inc. (NASDAQ:GILD) is an American pharmaceutical company that mainly specializes in the research and development of antiviral drugs. Morgan Stanley raised its price target on the stock in April to $85 with an Equal Weight rating on the shares, appreciating the company’s recent guidance.
Gilead Sciences, Inc. (NASDAQ:GILD), one of the best dividend stocks, currently offers a quarterly dividend of $0.75 per share, having raised it by 2.7% in February this year. Through this increase, the company stretched its dividend growth streak to eight years. The stock’s dividend yield came in at 3.59% on April 17.
The number of hedge funds tracked by Insider Monkey owning stakes in Gilead Sciences, Inc. (NASDAQ:GILD) grew to 64 in Q4 2022, from 56 in the previous quarter. The collective value of these stakes is over $4.45 billion.
Ariel Investments mentioned Gilead Sciences, Inc. (NASDAQ:GILD) in its Q4 2022 investor letter. Here is what the firm has to say:
“Biopharmaceutical company Gilead Sciences, Inc. (NASDAQ:GILD. advanced in the quarter on positive data released in a study evaluating Trodelvy versus comparative chemotherapy in patients with metastatic breast cancer. The detailed findings increased investor confidence the drug would receive incremental approvals for a broader range of breast cancer treatments. Shares also received a boost on news the TAF patent portfolio for HIV drugs will be extended from the middle of this decade through the early 2030s, creating greater visibility into the company’s long-term opportunity in the virology market.”
7. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 69
Bristol-Myers Squibb Company (NYSE:BMY) is a New York-based pharmaceutical industry company that offers innovative medical solutions to its consumers. On March 3, the company announced a quarterly dividend of $0.57 per share, which was consistent with its previous dividend. The company has been raising its dividends consistently for the past 17 years, which makes it one of the best dividend stocks on our list from the pharma sector. The stock has a dividend yield of 3.22%, as of April 17.
Bristol-Myers Squibb Company (NYSE:BMY) generated $11.4 billion in revenues in Q4 2022, which surpassed analysts’ estimates by $200 million. At the end of December 2022, the company had over $9 billion available in cash and cash equivalents.
At the end of December 2022, 69 hedge funds in Insider Monkey’s database were long Bristol-Myers Squibb Company (NYSE:BMY), compared with 68 funds in the previous quarter. The stakes owned by these hedge funds have a collective value of over $1.75 billion.
Baron Funds mentioned Bristol-Myers Squibb Company (NYSE:BMY) in its Q2 2022 investor letter. Here is what the firm has to say:
“We established a position in Bristol-Myers Squibb Company, a global biopharmaceutical company focused on discovering, developing, and selling medicines for patients in the therapeutic areas of oncology, immunology, cardiovascular, and neurology. The stock trades at a low valuation relative to its current earnings because the company faces loss of exclusivity on several key drugs over the next eight years, including Revlimid, Eliquis, and Opdivo.
At the same time, Bristol-Myers has multiple new products in the early stages of launch (e.g., Opdualag, Camzyos, Breyanzi, and Reblozyl), a robust new product pipeline (e.g., Deucravacitinib, Milvexian, and CELMoD agents), and a strong balance sheet combined with strong free cash flow generation that the company can use for acquisitions. Management believes these growth drivers can more than offset the loss of exclusivity and drive revenue growth through the end of the decade. Given the company’s low valuation, if the company can execute, we think there is substantial upside in the stock.”
6. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 70
CVS Health Corporation (NYSE:CVS) is an American healthcare company that owns a range of retail pharmacy chains. The company pays a quarterly dividend of $0.605 per share for a dividend yield of 3.19%, as of April 17. It has raised its dividends consecutively for the past two years.
CVS Health Corporation (NYSE:CVS) can be added to dividend portfolios alongside some of the best dividend stocks from the pharma sector, such as Pfizer Inc. (NYSE:PFE), Gilead Sciences, Inc. (NASDAQ:GILD), and Merck & Co., Inc. (NYSE:MRK).
At the end of Q4 2022, CVS Health Corporation (NYSE:CVS) was a part of 70 elite fund public portfolios, up from 67 in the previous quarter, as tracked by Insider Monkey. The stakes owned by these hedge funds are valued at over $2.13 billion collectively. With over 4.2 million shares, AQR Capital Management was the company’s leading stakeholder in Q4.
Vltava Fund mentioned CVS Health Corporation (NYSE:CVS) in its Q3 2022 investor letter. Here is what the firm has to say:
“CVS is a leader in the provision of healthcare services in the USA. It has three main businesses: an enormous network of pharmacies, a health insurance company, and “prescription benefit management”, which is a kind of intermediary between insurance companies and pharmacies. This is the result of large acquisitions over the past 15 years – most notably of Caremark (2007) and Aetna (2018). The markets had deemed its acquisition of health insurer Aetna too expensive (and we agree), so CVS stock then fell into disfavour for a few years.
We took advantage of this in the summer of 2020 and brought the stock into our portfolio at a time when its price was pressed down still further by the coronavirus pandemic. CVS is a giant. It has revenues of USD 300 billion, making it one of the largest companies in the world. It is a relatively stable and highly profitable company with strong free cash flow. Over the past few years, CVS has focused primarily on reducing debt.
This is already much lower than it had been after the Aetna acquisition, and most of the cash is now likely to go to shareholders through share buybacks or be used for smaller acquisitions to grow the company further. CVS trades at about 11 times annual earnings, which is a very appealing valuation given the expected future growth in profitability and overall modest cyclicality in its business.”
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Disclosure. None. 12 Best Pharma Dividend Stocks To Buy in 2023 is originally published on Insider Monkey.
