Bristol Myers Squibb Offers a Rare Find These Days - High Dividends

Never underestimate the power of solid dividend-paying stocks. Research has shown that over the last 30 years, dividend paying stocks have beaten non-dividend payers, 11.6% per year to 10.5% per year. That adds up. I also like that fact that dividend-paying stocks tend to be less volatile than stocks with no dividends.

But it isn't always easy to find good dividend-paying stocks. Now that the Federal Reserve had lowered interest rates to nearly nothing, dividend investors are wondering where all the good yields went. On top of that, the government has placed dividend restrictions on banks that have taken TARP money.

And with the economic slowdown, companies are making less money. Lower profits often lead to lower dividends. So far this year, 59 companies in the S&P 500 have either cut back on their dividend or ditched it entirely.

BMY Offers a Generous Dividend

Today I want to focus on a high-quality stock that still pays a generous dividend to investors -- Bristol-Myers Squibb (BMY). The stock currently pays a quarterly dividend of 31 cents a share. That translates to a yield of more than 6% a year. A yield that rich is very hard to come by these days. That's about twice the yield that you can get from a 10-year Treasury.

I also like that BMY has rock-solid fundamentals. The company has seen excellent sales and earnings in these tough economic times. As I've said many times before, consumers will cut back on just about anything else before they trim their health care expenses.

The Fundamentals for BMY Are Solid

For the first quarter, Bristol-Myers posted net income of $921 million, or 32 cents a share. However, if you knock out one-time charges, the company's adjusted earnings came in at 48 cents a share, which is a healthy increase over the 39 cents a share it made in last year's first quarter. Bear in mind that the average stock in the S&P 500 saw its earnings plunge by over 30% last quarter.

The financial ratios continue to look very good for Bristol-Myers. For example, gross margins jumped for 68% to 72%. That's very good to see. I was also pleased to see that sales of Plavix, the blood thinner, jumped 10%. Plavix is now BMY's top seller.

The company also makes antipsychotic medication Abilify, which saw its sales rise 30%. And Bristol-Myers makes key drugs like Pravachol (which lowers cholesterol) and Avapro (for hypertension).

Through its Mead Johnson subsidiary, Bristol-Myers makes Enfamil infant formula and other nutritional products for children. Earlier this year, BMY spun off Mead Johnson Nutrition (MJN) into its own publicly-traded stock, but still holds 83% of the shares.

One of the problems that Bristol-Myers has recently had may soon be coming to an end. Last quarter, the company's sales rose by just 3%. However, if you exclude dollar translations, sales would have been up 8%. So as the U.S. dollar inevitably gets weaker, it will spur top-line growth for Bristol-Myers.

I've been telling investors to steer clear of major pharmaceutical companies with liability issues like Merck (MRK) and Pfizer (PFE). Rest assured that BMY doesn't face the same massive litigation other pharmaceutical stocks do and has been much more stable than the competitors who have been announcing massive layoffs.

Not only does BMY have an outstanding 6% dividend, but the stock is also benefiting from strong institutional buying pressure right now. BMY is a great buy.

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