Harvest's Pharma Dividend: A Steady Hand in a Turbulent Sector

The pharmaceutical sector is undergoing a seismic shift, with regulatory overhauls, pricing pressures, and geopolitical risks reshaping the landscape for income investors. Amid this turbulence, Harvest Portfolios Group’s Big Pharma Split Corp has declared its May 2025 distribution, offering a rare opportunity to capitalize on steady cash flows while navigating the sector’s challenges. Let’s dissect the strategic implications for income-focused investors.

The Distribution: Stability in a Volatile Market

The Class A Shares will distribute $0.1031 per unit on May 9, maintaining the fund’s annualized target of $1.2372—a yield of 5.2% based on its recent $24.30 closing price. Meanwhile, Preferred Shares (PRM.PR.A) continue their fixed $0.50 annual payout, offering predictable income. Both distributions qualify as Canadian “eligible dividends”, unlocking preferential tax treatment for domestic investors.

The fund’s Distribution Reinvestment Plan (DRIP) adds further appeal, allowing investors to compound returns automatically. Yet, the real value lies in its hedged exposure to large-cap pharma stocks, which are now under unprecedented pressure.

Why Pharma’s Headwinds Create Opportunity

The pharmaceutical sector is at a crossroads. The Inflation Reduction Act (IRA) will slash Medicare drug prices by 22% starting in 2026, with 10 drugs targeted initially. This could reduce revenue for giants like AbbVie (ABBV) and Amgen (AMGN), whose top-selling drugs—Imbruvica and Enbrel—are in the crosshairs.

But there’s a silver lining: sector consolidation and innovation-driven growth are countervailing forces.

Harvest’s Strategy: A Shield Against Sector Volatility

Harvest’s fund mitigates risks through three pillars:
1. Hedged Currency Exposure: Investments in U.S. pharma stocks are converted back to CAD, shielding investors from currency swings.
2. Diversification: A portfolio of 10 large-cap pharma issuers spreads risk across therapeutic areas, including diabetes (e.g., Farxiga, Jardiance), oncology, and autoimmune therapies.
3. Option Writing: The fund’s At-The-Market (ATM) equity program—allowing up to $75M in new issuances—funds call options on holdings, boosting returns while capping downside risk.

These strategies are critical as pharma companies adapt to biosimilar competition, FTC patent challenges, and geopolitical supply chain risks. For instance, Teva Pharmaceutical’s (TEVA) recent patent delistings for drug-device combos could accelerate generic competition—a threat Harvest’s diversified portfolio softens.

Risks to Consider—and How the Fund Mitigates Them

• Return of Capital: Distributions may include a “return of capital,” reducing investors’ cost basis. However, the fund’s $5.8B asset base and disciplined reinvestment strategy provide a buffer.
• Sector Concentration: While large-cap pharma stocks are stable, their exposure to pricing reforms is unavoidable. Harvest’s equity ATM program, however, offers flexibility to scale capital amid market shifts.
• Share Price Volatility: The fund’s net asset value (NAV) may fluctuate, but its institutional management and hedging tools aim to minimize discounts to NAV.

The Case for Action: Income Now, Growth Later

The pharmaceutical sector’s low-single-digit revenue growth through 2027—driven by GLP-1 obesity drugs and oncology therapies—aligns with Harvest’s focus on cash flow generation. With yields outpacing the 10-year Canadian bond (3.5%), this fund offers a compelling income play.

Moreover, the IRA’s pricing caps may accelerate M&A activity, as companies seek scale to offset margin pressures. Harvest’s call option strategy could capitalize on market volatility during consolidation waves.

Final Take: Harvest’s Split Corp—A Dividend Anchor in Pharma’s Storm

The May 2025 distribution isn’t just a payout—it’s a strategic bid to attract investors seeking tax-efficient income amid sector upheaval. For those willing to ride out near-term regulatory headwinds, Harvest’s hedged, diversified exposure to large-cap pharma provides a rare blend of stability and growth potential.

Act now: Enroll in the DRIP to compound returns, and hold for the long term as the sector navigates its regulatory reset. This fund isn’t just a dividend machine—it’s a portfolio’s lifeline in turbulent times.

Investing involves risk, including loss of principal. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.