Novartis: This Big Pharma Giant Could Be a Sleep‑at‑Night Core Holding for Decades

Novartis (NYSE: NVS) is a major Swiss drug company with a market capitalization of over $300 billion. Its focus areas are extensive, spanning oncology, immunology, neuroscience, respiratory care, and cardiovascular, renal, and metabolic diseases. With a strong operating history and a diversified business,

The pharmaceutical giant could be an attractive stock for more conservative investors. Let's dive in and take a closer look to see why.

Novartis has a lot to work with

Novartis is one of the world's largest healthcare companies. That alone doesn't make it worth buying, but it speaks to the scale of the business and its historical success. A company doesn't achieve this level of scale and industry dominance by accident. Management is doing something right, and the drugmaker has been operating at a high level for years.

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Notably, Novartis is currently offering investors an attractive 2.9% dividend yield. That is far above the 1.1% of the S&P 500 index and the 1.7% average for the pharmaceutical sector.

The dividend has been steadily increasing, though not annually, for over 20 years. Meanwhile, the payout ratio is around 45%, which is entirely reasonable. Notably, over the past two decades, the payout ratio has never exceeded 100%. Basically, this is a relatively high-yield pharmaceutical stock that has a pretty conservative dividend profile.

There are going to be ups and downs

So, from a big-picture perspective, Novartis is the kind of dividend stock that will let you sleep well at night. However, investors shouldn't ignore the fact that it operates in a highly technical and competitive industry. The drugs it develops also have limited patent-protection windows, so it has to innovate constantly. And right now, older drugs are losing share to generic competition, leading revenue to flatline.

However, the company has also highlighted five drugs that are advancing through the pipeline or are gaining new indications. Basically, Novartis looks well on its way to offsetting the future revenue losses that come with patent expirations. In the end, this is just the way the pharma industry works, and Novartis is used to navigating these ebbs and flows while rewarding dividend investors well for sticking around.

A core holding for conservative dividend investors

Novartis isn't likely to be an exciting stock. That's purposeful, as management is clearly trying to build a sustainable, industry-leading business. If you invest for income and don't want to worry about sleepless nights, this giant pharma stock could be the perfect addition to your diversified dividend-stock portfolio.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.