Bristol-Myers Squibb (BMY -0.55%) is the kind of stock that potentially has a lot to offer to investors looking for wealth-building investments. With a large repertoire of medicines on the market, and a constant stream of programs approaching maturity and a shot at getting approved for sale, there's no question that the business will continue to create drugs that are in demand around the world.
But solid companies don't always make for the perfect investments, especially when investors have outsized expectations for them from the get-go. With that in mind, let's examine this stock's potential as a millionaire maker.
Here's how it could potentially help with accumulating wealth
Bristol-Myers won't make any investor into a millionaire overnight.
Its market cap is upwards of $118 billion, and in 2023 its top line was worth $45 billion, with net income of nearly $8 billion. There is, quite simply, no way that a business of that enormous size could grow fast enough to make anyone rich quick. As the pharmaceutical research and development (R&D) cycle takes seven years on average, there's a long delay between when Bristol-Myers conceives new programs and when -- or to be more accurate, if -- it commercializes them and realizes sales revenue.
Over a longer period, however, it is possible that this company could contribute to your other wealth-building efforts in a few ways. As one of the world's biggest pharmaceutical developers, Bristol-Myers isn't going anywhere even if it doesn't grow very rapidly, or even if it goes through a protracted rough patch. That means it could be an option for generating some consistent income for your portfolio in the form of a dividend.
Today, its forward dividend yield is around 4.1%. Over the last 10 years, it hiked its payout by 62.1%, and that may continue. Management says that it is committed to paying the dividend, and its payout ratio is a comfortable 60%, at least for now.
So, while that yield isn't exactly phenomenal for a dividend stock, investors who buy shares over time may find that the yield is increasing as the market's sentiment puts pressure on the share price, and in the near term it is likely that the payment will continue to rise as well.
Furthermore, there could be some returns to investors in the form of share price appreciation. Bristol-Myers has around $5 billion in share repurchases that are currently authorized. Though it likely won't have the extra capital on hand to reauthorize a stock buyback program in the near term, eventually it might, which could be another tailwind.
There are better options
In practice, there are better wealth-building stocks than Bristol-Myers Squibb.
This chart is just one argument for why that's the case:
BMY Operating Income (TTM) data by YCharts
As you can see, over the last five years Bristol-Myers' trailing-12-month (TTM) operating income has risen by just 23%, whereas its debt issuance has been substantial and its burden of interest payments has risen significantly. There aren't any expectations for rapid growth, and management is signaling that maintaining its current pace of growth over the long term may be a challenge. Therefore, it is probable that interest payments will continue to become a larger and larger drag on growth.
And the only way out of that will be to take out even more debt to invest in riskier R&D programs than it is currently undertaking.
Riskier programs will be necessary in the long run, as Bristol-Myers' current pipeline, largely comprised of fairly specialized oncology and immunology medicines, offers few opportunities for blockbuster drugs that could bring in outsized benefits if they get approved for sale. Similarly, developing new pharmaceutical technologies or therapeutic modalities, or perhaps acquiring biotech companies that are currently doing such work, may be necessary for it to expand faster. And that means the level of risk that gets passed on to the stock's investors will be a bit higher than they might normally expect from a big pharma stock.
So, don't buy Bristol-Myers stock with the expectation of getting rich, and temper your hopes of it making you significantly richer. Anything can happen, including a change in its strategy. But it doesn't make sense to bet on it with this business right now.
