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1 Top Dividend Stock to Buy Right Now

The Motley Fool
The Motley Fool
 2022-01-28

The pharmaceutical industry is an excellent place to look for dividend stocks. Since no one can predict illnesses in advance -- or the timing of the need for lifesaving medicines -- the demand for the drugs that pharma companies offer remains relatively constant regardless of economic conditions.

That's why prominent pharma giants have stable, reliable businesses that generate recurrent profits and stable cash flows, all of which are essential to sustain dividend growth. Let's examine one pharma company that looks like an outstanding dividend stock to buy right now: Novartis (NYSE: NVS) .

A diversified business

Novartis is perhaps best-known for its portfolio of cancer medicines, but the company's lineup is well-diversified across many other pharmaceutical areas. Within its oncology division, it markets medicines such as Tasigna, Promacta (sold as Revolade outside the U.S.), and Jakavi. Note that the latter is marketed by Incyte in the U.S., and Novartis pays royalties to Incyte for sales of Jakavi in Europe.

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Image source: Getty Images.

Novartis also owns Cosentyx, an immunosuppressant that is currently its top-selling product. Then there is Lucentis, an ophthalmology medicine that treats several eye-related disorders; Entresto, which treats some types of heart failures; immunosuppressant Gilenya; asthma medicine Xolair; and a gene-editing therapy for spinal muscular atrophy called Zolgensma.

All of these medicines generated more than $1 billion in sales for the nine months ended Sept. 30, and most saw revenue increases. For instance, sales of Cosentyx came in at $3.5 billion for the period, representing a 20% year-over-year increase. Meanwhile, revenue from Entresto grew by 46% year over year to roughly $3 billion, and Jakavi's sales jumped by 23% to $1.2 billion compared to the year-ago period. Some of Entresto's patents will expire in the U.S. next year, leading to lower sales of the medicine. But both Jakavi and Cosentyx won't lose patent exclusivity until 2026.

Furthermore, Novartis has an impressive pipeline. It currently boasts 54 programs in phase 3 studies. Even assuming a modest success rate of 50%, the company should be able to add scores of indications to existing drugs -- or launch brand-new products on the market -- within the next couple of years.

In October, Novartis earned approval from the U.S. Food and Drug Administration (FDA) for Scemblix. Management believes that this cancer medicine boasts blockbuster potential . The company is currently awaiting approval from the FDA for Lu-PSMA-617, another cancer therapy that could meaningfully contribute to its top-line growth in the years to come. Novartis sees Lu-PSMA-617 and Scemblix as its next growth drivers.

Novartis' ability to replenish its lineup bodes well for its future. In the short term, the company could also benefit from a new COVID-19 therapy it is looking to launch on the market. The treatment in question is called ensovibep, and it recently reported positive results from a phase 2 clinical trial.

Thanks to all these efforts, revenue continues to move higher. Net sales for the first nine months of 2021 increased by 7% to $38.4 billion. Some of the drugmaker's top medicines are seeing their sales decrease, but thanks to new approvals, the company will continue to see decent top-line growth.

An attractive dividend yield

Dividend investors like solid businesses, but they also like sizable yields. Novartis' current dividend yield of 3.79% is more than twice the average S&P 500 's yield of 1.27%. Further, the company offers a reasonable cash payout ratio of 60%. And while Novartis' stock has been hammered lately along with the broader market, it is now trading at attractive levels. The company's forward price-to-earnings (P/E) ratio of 13.1 is near its 52-week low, which seems reasonable compared to the 12.9 average forward P/E of the pharmaceutical industry.

A solid business, attractive yield, and all at a reasonable price make for an excellent dividend stock worth buying today.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool owns and recommends Incyte. The Motley Fool has a disclosure policy .

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