Should You Buy This Blue Chip Dividend Stock?

Financial markets have faced challenges so far in 2022. Accelerating inflation rates, upcoming interest rate hikes and geopolitical turmoil related to Russia’s invasion of Ukraine all contributed to the S&P500down 12% since the start of the year.

But not all components of the S&P 500 have performed poorly this year. Pharmaceutical inventory Bristol Myers Squibb (NYSE: BMY) gained 12% since the start of the year. This begs the question: Has Bristol-Myers rebounded too much to still be considered a buy? Let’s look at the fundamentals and valuation of the stock to find an answer to this question.

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A strong product portfolio led to a terrific year

Bristol-Myers posted impressive results in 2021. Revenues totaled $46.4 billion, representing a growth rate of 9.1% over the prior year. How was Bristol-Myers able to generate such high growth for a company of its size?

As has been the case for some time now, its sales growth is mainly the result of its three mega blockbusters: the cancer drugs Revlimid and Opdivo as well as the anticoagulant co-owned with Pfizer, said Eliquis. These three drugs accounted for $31.1 billion, or 67% of Bristol-Myers’ total revenue in 2021. But due to strong demand, they accounted for 73% of the company’s total revenue growth. company in 2021 compared to the previous year.

Moving on to net income, Bristol-Myers posted $7.51 of non-GAAP earnings per share (EPS) (adjusted) in 2021. This equates to a growth rate of 16.6% over 2020. So how does the Did the Company Achieve This Spectacular Profit Growth? ? A higher revenue base played a role. But there were two other things at play for the company.

Bristol-Myers’ year-over-year increase in non-GAAP net margin of 160 basis points to 36.3% in 2021 was a contributing factor. The other component of earnings growth is that the company’s number of shares outstanding, which is used to calculate non-GAAP diluted EPS, fell 2.1% year over year. . This was due to the company’s share buyback program.

The deep pipeline should bode well for future growth

Bristol-Myers had a very positive 2021. But with each of its top three drugs facing fierce competition from other drugmakers this decade, it’s worth considering whether the company can overcome its patent cliffs. Fortunately, I believe the company will be able to successfully overcome these obstacles.

That’s because Bristol-Myers has over 50 compounds currently in development. The company’s potential lead drugs, mavacamten (for rare heart conditions) and its immunology drug, deucravicitinib, are both expected to receive regulatory approvals from the U.S. Food and Drug Administration (FDA) this year.

Bristol-Myers’ anemia drug Reblozyl and ulcerative colitis/multiple sclerosis drug Zeposia associated with its drug pipeline are expected to more than offset the $12-14 billion decline in revenue due to the loss of exclusivity of key brands. That’s why Bristol-Myers has maintained its guidance for single-digit annual revenue growth between 2020 and 2025.

Analysts are confident the company can deliver on its revenue growth promise. This explains why analysts predict that Bristol-Myers’ adjusted and diluted EPS will grow 5% per year over the next five years.

An above-market payment that should continue to grow

Bristol-Myers appears to be a fundamentally sound company. And thanks to its manageable dividend payout ratio – just 26% in 2021 – the stock’s dividend is poised to grow. It also leaves plenty of retained earnings for the company to pay down debt, make stock buybacks and make acquisitions to further diversify its revenue base before its patents loom. This is why I believe that its board of directors was confident enough to authorize a 10.2% increase in the quarterly dividend last December.

The high single-digit annual dividend growth I expect going forward, coupled with a market-beating 3.2% dividend yield, makes Bristol Myers Squibb a strong dividend growth stock.

The stock looks undervalued

Despite the year-to-date rally, Bristol-Myers shares look attractive on a peer-to-peer basis. That’s because its forward price-to-earnings ratio of 8.3 is well below the industry average of 10.8.

And relative to its own history, Bristol-Myers’ rolling 3% dividend yield is slightly above its 13-year median of 2.9%. That’s why I’d say the stock is currently a decent buy for both value-oriented investors and dividend-growth-oriented investors.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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