Can This 2.8% Yielder Hold a Pulse?
When it comes to biotech stocks, dividends aren’t usually in the cards for shareholders.
Companies making experimental drugs, even if they have the potential to be extremely successful, usually do so without much cash left over.
So finding a business that’s operating as a biotech while also delivering for dividend investors is tricky.
Enter Sanofi (Nasdaq: SNY), a biotech leader that has paid dividends every year for 17 years. It currently carries a yield of 2.8%.
Sanofi didn’t always hold its biotech title, though…
For a long time, Sanofi was much more of a “traditional pharma” company. But then, after several biotech buyouts, it beefed up its position in the space.
The latest in its series of takeovers was a $3.2 billion offer for biotech company Translate Bio, a firm that focuses on messenger RNA (mRNA) tech.
This was just the most recent mRNA endeavor for Sanofi… But harnessing that technology has been a goal for the company for years now, and it’s bought out other biotechs to solidify itself in that market.
You might recognize mRNA as the backbone of the COVID-19 vaccines produced by Moderna (Nasdaq: MRNA) and Pfizer (NYSE: PFE), but the technology can be used to develop all kinds of life-saving medicines.
Sanofi isn’t interested in bringing another COVID-19 vaccine to market so long after the other front-runners.
However, it is working on adding an mRNA flu vaccine to its already robust drug pipeline.
As I pointed out, being in the biotech space doesn’t always go hand in hand with paying dividends.
But to Sanofi’s credit, it’s done well in this department – increasing its dividend every year for more than 10 years.
It’s able to support raising dividends from a solid balance sheet… The company is expected to make $44.6 billion in revenue this year, up from $43.4 billion in 2020.
And Sanofi’s free cash flow – or the cash left over after all other obligations – should round out at about $8.5 billion this year, which is 37% above where it was in 2020.
It should be noted, however, that 2020’s free cash flow was lower than 2019’s free cash flow by 10% and lower than the company’s 2017 free cash flow by a little more than 1%.
But Sanofi put in work to rebound from those dips, and its free cash flow is predicted to reach $9.8 billion by 2022, so SafetyNet Pro won’t penalize it too hard for its temporary weakness.
As for dividends, it paid $4.5 billion in dividends last year and is expected to pay $4.6 billion in dividends this year… giving Sanofi a payout ratio of 54%.
With growing revenues, along with excess cash and a sustainable payout ratio, Sanofi will easily be able to continue growing as a biotech name while still paying out dividends to shareholders.
Dividend Safety Rating: B
If you have a stock whose dividend safety you’d like to have analyzed, leave the ticker in the comments section.
You can always check to see whether we’ve written about your favorite stock recently. Just click on the magnifying glass on the upper right corner of the Wealthy Retirement homepage and type in the company name.