Bristol-Myers Squibb is a mega-cap pharmaceutical company that discovers, develops, licenses, manufactures, and sells a diverse portfolio of biopharmaceutical products globally. Bristol-Myers competes in hematology, oncology, cardiovascular, and immunology treatments. Some of its more valuable franchises are Revlimid, Opdivo, and Orencia.
The company should produce about $46 billion in revenue this year and the stock trades with a market capitalization of $141 billion.
Bristol-Myers has raised its payout for 14 consecutive years, so it doesn’t qualify to be a Dividend Aristocrat, but it is a high-quality dividend stock for other reasons. First, its current yield is better than double the S&P 500, coming in at 3.2%.
Next, the payout ratio is just 26% of earnings, meaning dividend safety is exemplary. Bristol-Myers could very easily weather a massive downturn in earnings – which is unlikely given its highly defensive and recession-resilient nature – and still raise its dividend. This means that meaningful dividend growth in the coming years is all but assured, and we see Bristol-Myers as well positioned to provide shareholders with reasonably high levels of payout growth in the coming years.
But where Bristol-Myers really stands out is its valuation. Shares trade today at just 8.3 times this year’s earnings estimate, which is well below our estimate of fair value of 13.5 times earnings. That makes Bristol-Myers one of the cheapest stocks in our coverage universe of hundreds of stocks, and we see the valuation alone as having the potential to add more than 10% annually to shareholder returns.
Combined with the dividend and 3% annual earnings growth, Bristol-Myers could see 15%+ annual total returns to shareholders.
