Despite a lousy market performance during the week ended Sept. 6, the past 20 months have been an extraordinary time for most investors. The benchmark S&P 500 index has soared 40.9% since the end of 2022.
A rough start to the month of September was a harsh reminder that markets rarely rise steadily. After over a year and a half of strong gains, another bear market could be around the corner.
In precarious times like these, investing in dividend-paying businesses like Bristol Myers Squibb(NYSE: BMY) and Royalty Pharma(NASDAQ: RPRX) makes sense. Their stock prices could tank, but the quarterly payments they distribute are yours to keep. Best of all, these companies have been rapidly raising their payouts, so the yield you receive on your original investment could double a few times before you're ready to retire.
Right now, $100 is enough to buy both of these stocks. Read on to see why adding them to a diversified portfolio and holding them over the long run is a great way to boost your passive income stream.
Bristol Myers Squibb
Bristol Myers Squibb is the century-old pharmaceutical giant that markets the oral blood thinner Eliquis in partnership with Pfizer. Eliquis sales bounded to an annualized $13.7 billion in the second quarter, and it's not the only growth driver pushing this company's dividend payment higher.
At recent prices, Bristol Myers Squibb offers a 4.9% yield. Last December, the drugmaker raised its dividend for the 15th consecutive year, and the pace has been remarkable. The company has increased its payout by 7.9% annually over the past five years.
Eliquis could lose patent protections in the E.U. in 2026 and the U.S. in 2028, but Bristol Myers Squibb has plenty of potential growth drivers to offset the upcoming losses. In December, the Food and Drug Administration is expected to grant approval for a subcutaneous injection of Opdivo, a successful cancer immunotherapy. In the second quarter, sales of the infused version rose 11% year over year to an annualized $9.5 billion.
In addition to a new version of Opdivo, Bristol Myers Squibb could soon earn approval to market a first-in-class antipsychotic drug called KarXT. If approved, it will be the first antipsychotic that doesn't act on dopamine receptors, which should make it much easier to tolerate.
In addition to potential contributions from subcutaneous Opdivo and KarXT, Opdualag, a skin cancer drug approved in 2022, is driving growth now that it's approved to treat newly diagnosed patients. Second-quarter Opdualag sales bounded 63% higher year over year to an annualized $1.8 billion. As the new standard of care for inoperable melanoma, it could climb much higher.
Royalty Pharma
The drugmakers that Royalty Pharma lends money to catch a lot of flack for high prices, but the drugs they sell are responsible for a surprisingly small portion of the national medical expenditure. Prescription drug spending rose 8.4% in 2022. At $405.9 billion, though, drug spending was still less than one-third of what Americans paid to hospitals.
Individual drug launches are highly unpredictable, but it isn't unreasonable to expect overall drug sales to continue climbing over the long run. With financial stakes in products from dozens of different companies, Royalty Pharma is a relatively reliable way to ride the pharmaceutical spending trend.
Profits rose sharply and then fell along with demand for COVID-19 vaccines, but the investments Royalty Pharma made with the windfall will soon allow its bottom line to reach new heights. These days, the company receives royalties from 15 blockbusters that generate more than $1 billion in annual sales.
Some of the drugs Royalty Pharma has a stake in are in decline, but plenty of new portfolio additions are offsetting the losses and pushing overall profits higher. Trailing-12-month free cash flow has risen 60% since early 2020.
RPRX Free Cash Flow data by YCharts.
Royalty Pharma began paying a dividend in 2020, and it's already raised its payout by 40% to $0.21 per share. At recent prices, the stock offers a 2.9% yield that could continue growing quickly thanks to recent portfolio expansions.
The company generated $2.7 billion in free cash flow over the past 12 months, but it spent only $368 million to meet its dividend commitment. Thus, there are plenty of profits to raise its payout and invest in new revenue streams. This year alone, it expects to deploy about $2 billion in capital.
At the moment, Royalty Pharma collects royalties from 35 commercial-stage drugs, 15 of which are blockbusters. With the recent increases in capital available to deploy, the royalties it receives and dividends it pays could rise exponentially in the decade ahead.
Should you invest $1,000 in Bristol Myers Squibb right now?
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb and Pfizer. The Motley Fool has a disclosure policy.
