What are we looking for?
Pharma-industry dividends with long-term sustainability that extends well past the fight against COVID-19.
The screen
Drug companies working to find coronavirus vaccines, tests and therapies are in the news again this week.
Those that ultimately succeed will post strong gains for investors. However, trying to bet on the outcome of continuing drug trials is laden with risk. Far better for investors, we think, is to pick stocks that could gain from any COVID-19 breakthroughs, but that also have the kind of drug lineups and development pipelines needed for long-term success.
The best of these firms will also have strong cash flow to sustain heavy research spending and shareholder dividends.
Our search focused on global pharmaceutical leaders with those quality markers and that pay dividends. From there, we applied our TSI Dividend Sustainability Rating System, awarding points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
- One point for an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated nine stocks. Pfizer Inc. has an industry-leading pipeline. Merck & Co. Inc., Amgen Inc., and Bristol-Myers Squibb Co. all profit from blockbuster drugs. Johnson & Johnson supplements its drug revenue with consumer products and medical devices. Britain’s GlaxoSmithKline PLC and Switzerland’s Novartis International AG are global giants. Eli Lilly & Co.’s 2019 spinoff of Elanco, its animal-health unit, lets it better focus on humans. And then there’s Gilead Sciences Inc., with its broad range of successful prescription drugs.
We advise investors to do additional research on investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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