Why Amgen and Novartis Are Top Dividend Growth Picks Amid Patent Cliffs and Market Volatility

Pharmaceutical giants Amgen (AMGN) and Novartis (NVS) face patent expirations for key drugs, yet their robust pipelines, dividend resilience, and strategic growth initiatives position them as undervalued long-term holdings. With yields above the S&P 500 and diversified portfolios driving consistent earnings, these companies offer stability and growth potential in volatile markets. Here's why investors should consider both for dividend growth and capital appreciation.

Amgen: A Pipeline-Powered Dividend Machine

Amgen's dividend yield of 2.5% and 10-year average annual dividend growth of 10% make it a standout in the sector. Despite patent cliffs for legacy drugs like Prolia and XGEVA, the company is advancing 12+ late-stage programs to drive future revenue. Key milestones include:

• UPLIZNA (gMG): A December 2025 FDA decision could expand its use in myasthenia gravis, a rare autoimmune disease.
• TEZSPIRE (CRSwNP): An October 2025 approval for nasal polyps would solidify its position in immuno-inflammatory therapies.
• IMDELLTRA (SCLC): Data from ASCO (June 2025) highlighted its potential as a first-line treatment for small cell lung cancer, a high-growth oncology market.

Amgen's $20.00–$21.20 2025 non-GAAP EPS guidance reflects confidence in its pipeline, with oncology and rare disease therapies accounting for 60% of 2025 sales growth. The stock's forward P/E of 14.5x trails its 5-year average of 16.8x, suggesting undervaluation relative to its growth trajectory.

Novartis: Navigating Patent Cliffs with Innovation

Novartis' 2.0% dividend yield and 5-year average dividend growth of 6% align with its strategy of balancing risk through a diversified portfolio. While Entresto faces generic competition in 2025, its pipeline includes 6 major PDUFA dates by Q4 2025, including:

• Deramiocel (DMD cardiomyopathy): An August 2025 approval could capture a $400M+ niche market, addressing a fatal complication of Duchenne muscular dystrophy.
• Vanrafia (IgA nephropathy): A Q1 2025 FDA accelerated approval underscores its focus on rare diseases.
• Fabhalta (C3 glomerulopathy): Global approvals in Q1 2025 mark it as the first therapy for this ultra-rare kidney disorder.

Despite Entresto's patent cliff, Q1 2025 sales rose 15% cc to $13.2B, driven by growth in Kisqali (breast cancer), Kesimpta (multiple sclerosis), and Leqvio (cholesterol). Novartis' 2025 free cash flow guidance of $12–$13B supports its dividend and R&D investments, including $23B allocated to U.S. manufacturing to insulate against supply chain risks.

Why These Stocks Outperform in Volatile Markets

1. Yield Advantage Over the S&P 500:
   With the S&P 500 yielding ~1.4%, Amgen and Novartis offer 80–114% higher dividend yields, providing income stability during economic uncertainty.

2. Pipeline-Driven Growth:
   Both companies are repositioning portfolios toward high-margin, patented therapies in oncology, rare diseases, and immuno-inflammatory conditions—markets with limited generic competition.

3. Dividend Resilience:
   Amgen and Novartis have maintained dividend hikes for 28+ consecutive years, outpacing the S&P 500's average 6-year streak of dividend growth. Their strong free cash flow (Amgen: $14B+; Novartis: $12B+) ensures sustainability.

4. Valuation Discounts:
   At 14.5x and 12.8x forward P/E, respectively, both trade below their 5-year averages (16.8x and 14.3x), despite robust growth prospects.

Investment Thesis

Amgen and Novartis are undervalued buy-and-hold plays for investors seeking:
- Stable income: Their dividends provide a cushion in volatile markets.
- Growth catalysts: 2025 regulatory milestones and pipeline wins could lift stock multiples.
- Portfolio diversification: Their exposure to oncology, rare diseases, and chronic therapies aligns with long-term healthcare demand.

Risk Considerations

• Patent Cliffs: Entresto's generics could pressure Novartis' sales, though its pipeline offsets risks.
• Regulatory Delays: Negative PDUFA outcomes (e.g., UPLIZNA or Deramiocel) could temporarily weaken stock performance.
• Market Volatility: Biotech stocks are sensitive to interest rate hikes and macroeconomic downturns.

Conclusion

Amgen and Novartis are top dividend growth picks in 2025, combining high yields, resilient pipelines, and strategic initiatives to navigate patent cliffs. With undervalued multiples and a focus on high-growth therapeutic areas, they offer asymmetric upside for long-term investors. Consider adding both to portfolios seeking stability and income in uncertain markets.