Payouts are becoming more popular in the sector, which means income investors may want to give biotech stocks another look.
Broadly speaking, biotech isn’t big on dividends. Companies prefer to invest more in R&D than in wealth dispersal, knowing that a failed product or weak pipeline could bankrupt the company.
That being said, payouts are becoming more popular in the sector, which means income investors may want to give biotech stocks another look.
Here’s an overview of three biotech stocks that pay dividends, as well as a snapshot of their payout history. This list was made using data from the Best Biotechnology Dividend Stocks on Dividend.com
All figures are current as of November 21, 2017.
Gilead Sciences (NASDAQ:GILD)
Annual dividend: $2.08
Dividend yield: 2.87 percent
In February 2017, the company reported an increase of 10 percent in the quarterly cash dividend, for the first quarter of 2017. Last year the quarterly dividend increased from $0.43 to $0.47 per share. The company’s current share price is $72.25 with a market cap of 94.35 billion.
The company announced a dividend program in February 2015, citing their strong portfolio and pipeline as the reason. Gilead’s payout ratio amounts to 25.8 percent.
Annual Dividend: $4.60
Dividend yield: 2.71 percent
When the company originally launched its dividend in 2011, it was only $0.28; its first payment in 2017 was much higher than that, at $1.15 per share. The new year brought a good start for Amgen, with a 16.23 percent increase year-to-date bringing its share price to $169.91, while its market cap reached $123.35 billion.
With a payout ratio of 37.4 percent, the company seems well-positioned to continue that growth.
Bio-Techne Corp (NASDAQ:TECH)
Annual dividend: $1.28
Dividend yield: 0.97 percent
Bio-Techne introduced their own quarterly payments in 2008. That might seem late to the game—but in biotech terms, they were practically pioneering. Bio-Techne has seen a steady 28.44 percent growth year-to-date, their share price sits at 132.07. The market cap of the company is 4.95 billion.
In fact, Bio-Techne was one of the first big biotech companies to introduce a dividend program, paying out $0.25 per share in 2008, since then that amount has gone up. The company’s first dividend of 2017 totaled $0.32 per share.
Why don’t more biotechs pay dividends?
It may seem there aren’t as many stocks that have dividends available. Biotech stocks that pay them are few and far between.
That’s because, despite dividends appealing to income investors, they aren’t always great for the overall share value. As Cheryl Swanson of The Motley Fool points out, Amgen’s stock fell five percent the same day it announced its first dividend payment.
“This is just one example showcasing a broader point,” she said. “Biotech shares move upward by creating high-impact drugs and accomplishing high-value acquisitions, rather than distributing dollars to investors.”
Many biotechs are unwilling to risk future growth potential by sharing profits now. They prefer to reinvest earnings into R&D, even if they already have several successful products on the market: after all, there’s always new patent opportunities. For most small-cap biotech companies providing a dividend to investors is not feasible.
Finally, biotech stocks usually attract a different kind of investor. This is a high-risk, volatile market where with patience and the right tech or medicine returns can be big, but can also end up with losses as a company fails a test or its product gets denied by the FDA. Income investors—those most interested in dividends—tend to look for more stable stocks.
Of course, the above companies are changing that pattern. With biotechs like Amgen or Gilead leading the charge and creating dividend payment plans, income investors may soon find more to get excited about in this sector.
This article is an updated version of an article originally published on the Investing News Network in 2016.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.