Pharmaceutical companies traditionally offer a rich vein of dividend income for investors and there are many exciting opportunities in the sector.
But it is essential to be highly selective as we believe dividends – and share prices – are likely to come under pressure for some companies.
For example, “Big Pharma” typically earn over 50% of their profit in the US but a slew of policies aimed at reducing drug prices could be on the way.
Pricing is also due to come under pressure as generic alternatives to highly-profitable branded biological drugs hit the market, whilst R&D pipelines clustered around treatments for cancer and inflammatory diseases should create fierce indication in these high value areas as pipelines mature.
For our portfolio, we seek companies with leadership positions in less vulnerable market niches like vaccinations, treatments for rare diseases and immuno-oncology, who can generate enough cash to pay growing dividends even in stressed scenarios. At the moment we don’t hold the UK-listed giants, as they do not meet this criteria.
But as a global investment trust, we can search the world for those with strong balance sheets and enough cashflow to sustain – and grow – their dividend, even in tough markets.
We have found exciting investments in Europe, the US, and in emerging markets.
That way, we expect our dividend stream from the sector to remain healthy.
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