Better Dividend Stock: Pfizer vs. AbbVie

Income-seeking investors typically don’t think of the innovation-dependent pharmaceutical industry as a place to find companies with stable cash flow.

There are good reasons for dividend seekers to be cautious about pharmaceutical company stocks. The benefits of market exclusivity protected by a patent can disappear in the blink of an eye after the patent expires.

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These two giants of the pharmaceutical industry are made up of such moving parts that if one blockbuster falls off the patent cliff, the other is on deck to keep profits moving in the right direction.

Pfizer (PFE -1.32%) and AbbVie (ABBV 0.64%) They offer much higher-than-average dividend yields, and both have raised their annual dividends for more than 10 consecutive years. To determine which stocks are better buys for income-seeking investors, let’s gauge their strengths against the challenges they face.

Pfizer

Pfizer has consistently increased its dividend by 61.5% over the past 10 years. It’s not that fast, but you don’t need to earn higher returns every year to make satisfactory returns in the short term. At recent prices, the stock offers a hefty yield of 6.2%.

Pfizer’s stock price has fallen 56% from the high it set two years ago. The stock has been unusually volatile due to unprecedented sales growth of its COVID-19 products, which have fallen off a cliff and continue to disappoint in 2022.

Pfizer predicted combined sales of Comirnati and Paxlovid of $54 billion starting in 2022. This year, the company expects the two companies to generate just $8 billion in sales.

In 2023, adjusted earnings fell 72% to $1.84 per share due to lower sales of COVID-19 products. While the earnings decline is shocking, Pfizer won’t have much trouble meeting its dividend promise, currently set at $1.68 per year.

Management said adjusted earnings will increase in the range of $2.05 to $2.25 per share, thanks in part to recent investments.

Last year, Pfizer acquired Seagen, a cancer drug company, for $43 billion in cash. Sales of Padcev, one of four commercial-stage treatments acquired by Pfizer this year, may surge. Recently, the Food and Drug Administration (FDA) approved it for the treatment of patients with newly diagnosed bladder cancer. Estimates vary, but most analysts expect Padcev sales to jump from $52 million in 2023 to more than $7 billion by 2030.

AbbVie

The 3.6% dividend yield offered by AbbVie pales in comparison to Pfizer’s, but if these two companies repeat their past performance, long-term investors could come out well ahead. AbbVie has increased its payout by a whopping 269% since 2014.

Like Pfizer, AbbVie reported a decline in 2023 profits, but for different reasons. AbbVie’s top-selling drug, Humira, lost patent-protected market exclusivity in the U.S. in January. As a result, sales of previous blockbusters decreased by 32% in 2023.

The company reported $12.2 billion in U.S. Humira sales last year, much of which will be lost to biosimilar competition in 2024. AbbVie looks like a great dividend stock to buy regardless of its impending losses. The past few years are paying off.

In 2019, AbbVie had great success with the launches of arthritis treatment Rinvoq and psoriasis treatment Skyrizi. The two companies had combined revenue of $11.7 billion last year, which encouraged executives to raise their revenue forecasts. Now, the two companies are expected to generate more than $27 billion in revenue by 2027.

AbbVie is also reporting surprising success with its new migraine drug. Annual sales for Ubrelvy and Qulipta are now expected to exceed $3 billion annually.

The next year or two won’t be AbbVie’s best in terms of dividend growth, but investors should know that the company isn’t shy about steep payout increases. The company’s payouts have grown a whopping 269% over the past decade.

Better buy now

If you’re nearing retirement or already retired, Pfizer may be the right choice for you because of its higher returns. But for everyone else, AbbVie looks like a better buy.

Although AbbVie has a lower initial yield, it appears to be able to raise its dividend at a much faster rate than Pfizer over the long term.