The pharmaceutical giant shows the potential for consistent dividend yields in the upcoming years. Novo Nordisk, the Danish pharmaceutical company (NYSE: NVO), is one of the global titans in the pharmaceutical industry, boasting a market capitalization of close to $360 billion. With a broad spectrum of insulin products, diabetes medication, and treatments for obesity, Novo Nordisk has showcased significant growth over the years, attributed to its unwavering dedication to innovation in metabolic disorder treatments and its growing presence in developing markets. The question arises, is Novo Nordisk a valuable dividend stock for investors seeking income? Let’s delve further into this.
Dividend policy and yield
Novo Nordisk executes dividend payments bi-annually, in March and August, dictated by its yearly profits. The dividend payout ratio, a metric that determines the proportion of earnings distributed as dividends, has remained around 50% since 2017, suggesting a balanced strategy between offering returns to shareholders and reinvesting in the business.
The current dividend yield of Novo Nordisk, which calculates the yearly dividend per share over the share price, is at 1.1%. This is somewhat lower than the healthcare sector’s average yield of 2.28% and 1.54% for dividend stocks listed on the S&P 500. Furthermore, the dividend growth rate of Novo Nordisk hasn’t demonstrated remarkable growth recently.
Dividend growth rate and total return
Over the last five years, Novo Nordisk has seen a compound annual growth rate (CAGR) of its dividend at 7.6%, falling short of its earnings growth rate of 49.7% over the same duration. However, the company’s dividend growth rate aligns perfectly with the average of large-cap healthcare stocks (average growth rate of 7.6%), albeit slightly lower than the S&P 500 index (historical average dividend growth rate of 8.71%).
The dividend growth of Novo Nordisk has made a moderate contribution to the firm’s impressive total returns on capital for shareholders, which incorporates both dividend income and capital appreciation. For instance, over the previous decade, Novo Nordisk has yielded a total return of 504% (assuming dividends were reinvested), compared to 225% for the S&P 500 index.
Dividend outlook and risks
The dividend outlook for Novo Nordisk is predominantly positive, with the firm projecting high double-digit percentage growth in its earnings for 2023 and 2024. The company’s consistent dividend payout ratio over recent years makes further dividend increases probable.
Novo Nordisk’s dividend growth is bolstered by its robust competitive advantages in the diabetes sector, where it commands a leading market share of approximately 30%. The firm has a diverse product portfolio catering to various segments of the diabetes population, including insulin-dependent and non-insulin-dependent patients and patients with obesity and cardiovascular complications.
However, it’s crucial to note that most of this projected growth is expected to stem from a single drug – the glucagon-like peptide-1 receptor agonist semaglutide. Currently marketed as a type 2 diabetes medication and a weight loss treatment under the name Ozempic, Wegovy, and Rybelsus, Novo Nordisk’s heavy reliance on this single drug for most of its revenue and profit growth poses a unique risk for income investors.
Verdict
While Novo Nordisk doesn’t provide an impressive yield, its shares have nonetheless generated notable returns for investors over the past ten years. The company’s solid competitive stance and promising pipeline of innovations in metabolic disorders are expected to underpin its future earnings and dividend growth. Thus, this pharmaceutical giant is an attractive option for investors seeking a dependable passive income source.
Despite some risk factors, Novo Nordisk presents an appealing case for income investors. With a stronghold in the healthcare market and a healthy pipeline of innovative treatments, the company is expected to yield fruitful returns over the coming years. Though it does not boast an eye-catching yield currently, the combination of consistent dividends and potential for capital appreciation suggests a bright future for its investors. While it’s wise to keep an eye on the risks associated with heavy dependence on a single product, the overall resilience and promising outlook of Novo Nordisk make it a candidate worthy of consideration for any income-focused investment portfolio.
