The healthcare sector has long been a sanctuary for income investors seeking stability and growth. Within this realm, Bristol-Myers Squibb (BMY 0.71%) and Merck & Co. (MRK -0.03%) stand out for their combination of above-average dividend yields and proven business models. These industry titans have consistently rewarded shareholders through market cycles while maintaining robust drug development pipelines.
Recent market volatility has created an attractive entry point for both stocks heading into 2025. Their dividend yields now sit well above the S&P 500 average, while their valuations scan as compelling relative to historical norms. As a result, these pharmaceutical leaders warrant serious consideration for investors seeking defensive positioning and reliable income streams.
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Let's examine the key factors that make these two high-yield dividend stocks screen as top buys early in the new year.
A healthy prescription for income
Bristol-Myers Squibb has built its success on groundbreaking cancer treatments and strategic acquisitions. The company's oncology portfolio includes breakthrough immunotherapy drugs that have transformed patient care. This strong market position generates substantial cash flows that support shareholder returns.
Turning to the specifics, the pharmaceutical giant offers investors a 4.3% dividend yield backed by a reasonable 59.8% payout ratio. Management has demonstrated its commitment to shareholders through consistent dividend growth, averaging 7.91% annually over the past five years. The recent acquisitions of Mirati, RayzeBio, and Karuna have strengthened its pipeline significantly this year, creating a bridge to the company's future.
That said, a significant challenge looms on the horizon. The company faces major patent expirations by 2028, including its blockbuster drugs Opdivo and Eliquis. Moreover, the substantial debt from its $74 billion Celgene acquisition in 2019 adds some unwelcome financial pressure during this transition period. The drugmaker's stock performance reflects these concerns, having lost 11.4% of its value over the past five years.
BMY Total Long Term Debt (Annual) data by YCharts.
Trading at 8.12 times forward earnings, Bristol-Myers Squibb stock offers considerable value given its strong oncology franchise, acquisition strategy, and generous shareholder rewards. While the 2028 patent cliff poses a significant challenge, the company's stellar dividend growth and focus on rebuilding its pipeline through strategic deals make it attractive for income investors seeking a combination of yield and value.
Market pressures weigh on returns
Merck has established itself as a leader in specialty pharmaceuticals and oncology. The company's flagship cancer drug Keytruda has revolutionized treatment protocols and drives significant revenue growth. This dominant market position generates substantial cash flows to fund shareholder returns.
On the dividend front, the pharmaceutical giant delivers a 3.25% yield supported by a healthy 64.4% payout ratio. The company's track record shows consistent dividend increases, with 7.68% annual growth over the past five years. A strategic focus on high-margin specialty drugs and unmet medical needs has strengthened its competitive position.
Yet investors must weigh several risks. The looming patent expiration for Keytruda in 2028 threatens a key revenue stream. The company's pipeline beyond immuno-oncology requires bolstering to counter this future patent cliff. Competition in cancer treatment continues to intensify, potentially challenging Merck's market leadership.
At 10.2 times forward earnings, Merck stock trades at a valuation that reflects both its current oncology leadership and future patent risks. However, with specialty drugs driving strong cash flows and an elite dividend program in place, Merck stands out as an appealing option for income investors.
Two high-yield stocks worth buying
For income investors, these pharmaceutical giants offer two distinct paths forward. Bristol-Myers Squibb provides a higher 4.3% yield and an acquisition-driven strategy to counter its 2028 patent cliff. Merck offers a lower but still attractive 3.25% yield, with its specialty drug focus supporting consistent payout growth. Both stocks trade at compelling valuations under 11 times forward earnings, making early 2025 an attractive entry point for investors seeking healthcare exposure and growing dividend income.
