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The biotechnology sector is one of my favorites to invest in. Non-cyclical demand for medicines and the potential for shareholders to benefit from exciting clinical breakthroughs are attractive factors. Consequently, I think there are plenty of dividend stocks to buy in this area of the stock market that have the potential for good returns over the longer term.
Two pharmaceutical stocks that I already own and will buy more of this month are FTSE 100 Constitution GSK (LSE: GSK) and S&P 500 Constitution johnson and johnson (NYSE:JNJ).
Let’s explore the prospects of each company separately.
GSK
GSK’s share price fell 10% over the past year. However, there are signs of recovery after the strong earnings results. The stock currently yields 6.05%.
Up 13% year-on-year to £29.3bn, the company’s sales for the full year exceeded expectations. I am especially encouraged by the double-digit annual revenue growth in several divisions, including specialty medicines (+37%), oncology (+23%), and HIV (+20%).
The pharmaceutical giant noted that shareholders can benefit from better margins. It predicts an increase in adjusted operating profit of 10-12% and an increase in earnings per share (EPS) of 12-15%. These numbers add credibility to CEO Emma Walmsley’s claim that 2022 was a “historic year” for the business.
Additionally, passive income investors will note that the company’s progressive dividend policy remains unchanged, guided by a 40-60% payout rate. An expected dividend of 56.5 pence per share makes this one of the best performing FTSE 100 stocks in the sector.
The company faces risks from competition, particularly companies that have invested heavily in mRNA technologies, such as Modern and Pfizer. Both businesses are targeting an RSV vaccine this year. Moderna recently announced that its candidate vaccine was 84% effective in preventing symptoms in older adults in a late-stage trial.
GSK has cited its potential new RSV vaccine as an area of growth. The company could face a tough fight for market share. Nonetheless, this stock appears to be an attractive value compared to its rivals, in my opinion, with a price-earnings ratio of just 4.15.
johnson and johnson
Johnson & Johnson’s stock price fell 4.5% in the past 12 months. The dividend yield is 2.77%.
The firm is a true dividend aristocrat. It has enjoyed a 59-year dividend growth streak and hasn’t missed a dividend payment in over a century. Although shareholder payouts are not guaranteed, this company’s dividend is as certain as possible.
It is one of only two US companies with a AAA credit rating, along with Microsoft. This means you have a very low risk of bankruptcy, even in a severe recession. The firm has a strong portfolio of medicines and a diverse mix of products. It manufactures vaccines, medical devices, and consumer health care products.
In my opinion, strong product demand makes Johnson & Johnson an inflation-resistant stock. However, the company also faces imminent settlements for billions of dollars in restitution payments.
More than 40,000 lawsuits have been filed alleging that the group’s talcum powder products caused cancer. A US court recently blocked the company from using a legal maneuver to break up the company and file for bankruptcy in the process, although Johnson & Johnson plans to appeal the decision.
Ongoing legal difficulties could limit further share price growth. Despite the risks, a strong track record of good returns, a solid balance sheet, and reliable dividends make this stock a buy for me.
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