Dividend Hunting In Bear Country

One stock in the pharmaceutical sector has been calling to me lately like a siren song amid market turbulence.

I'm talking about Bristol-Myers Squibb Co. (BMY), which has taken a beating in the March-April selloff but is dangling a forward estimated 5% dividend yield while generating a whopping 14% annual free cash flow — tops among the largest drug names.

I've been watching this one since January, when it first dipped below $52. Like a patient fisherman, I've been waiting for just the right moment to cast my line. That moment appears to be now, as BMY slides toward the $50 mark amid broader market jitters and sector rotation. It’s remarkable how often Wall Street throws the proverbial baby out with the bathwater during these periodic fits of selling.

The beauty of BMY is not just valuation. It’s historically proven itself as a financial bomb shelter — outperforming the S&P 500 in four major recessions since 1990.

During the 2020 pandemic, it returned 36% vs. the S&P’s 26%. In the Great Recession, it gained 13% while the broader market fell 16%.

During the 1990 Persian Gulf War recession, it delivered a jaw-dropping 76%.

And here’s one more kicker: BMY’s current 14% free cash flow yield is nearly 10% higher than equivalent cash investment yields — among the best “relative yields” it’s posted in 35 years.

On top of that, its 5%+ dividend towers over the S&P’s 1.3% and Big Pharma’s 3.65% median.

This is a rare setup where both the cash yield and the ability to sustain it align — a combination that’s very hard to beat in a defensive play.

Of course, no stock is bulletproof. BMY will need to navigate patent cliffs and increased regulatory scrutiny on drug pricing.

Wall Street is also pricing in little to no growth in the near term — and that’s probably fair. But the current setup suggests BMY could still outperform, especially if the S&P enters a decline in 2025.

This defensive mindset is why Warren Buffett and other veterans have been moving to abnormally extreme levels of cash since 2024. They're battening down the hatches while the financial seas are still relatively calm.

And speaking of smart investors, I had lunch last week at Tadich Grill with a hedge fund manager I’ve known for decades. When I mentioned I was looking for defensive plays, he immediately brought up BMY.

“What’s rare these days,” he said, “is a company with both a high dividend and the cash flow to actually back it up.” He then showed me his firm’s spreadsheets — stress-tested across recession scenarios back to Nixon — and BMY held firm.

Having run similar models myself (if not quite as colour-coded), I nodded in agreement.

At the current ~$50 share price, BMY’s free cash flow yield stands near 14%. That’s nearly 10% better than risk-free Treasury rates and more than double the Big Pharma peer group median of 6.15%.

So what could go wrong? A steeper summer selloff. Or an aggressive federal move to mandate drug pricing — a risk that’s always on the table, but rarely moves quickly. Supply chain issues, especially for ingredients sourced from China, are also worth watching.

That said, BMY has manufacturing facilities globally, and 71% of its revenue comes from the US. That gives it some insulation if trade tensions flare.

But here’s the thing: those risks hit all major pharma companies. BMY starts from a stronger base: better cash flow, better history, better defensive positioning.

My view? BMY is worth owning for its super-sized dividend and battle-tested resilience. I suggest you buy the dip.