With the S&P 500 Index at a record high to end 2021, investors have to look harder to find undervalued dividend stocks. However, the healthcare sector has many blue-chip dividend payers trading at reasonable valuations, explains Bob Cirua, contributing editor to Sure Dividend.

Bristol-Myers Squibb (BMY) is a reliable dividend stock with a safe payout under any economic conditions. The stock has a hefty current yield of 3.5%. BMY also appears to be significantly undervalued, given its long-term growth potential. These qualities make BMY a top pick for income investors.

Bristol-Myers Squibb is one of the world’s largest pharmaceutical companies. It manufactures cardiovascular and anti-cancer therapeutics, with annual revenues of about $42 billion.

The company’s financial results have been impressive over the course of the year. In the 2021 third quarter, Bristol-Myers reported 10% revenue growth on a year-over-year basis. Adjusted earnings-per-share grew 23% from the same quarter last year.

The biggest growth catalyst for healthcare stocks such as Bristol-Myers is the aging U.S. population, which should provide a long-term growth tailwind. Healthcare is also a highly recession-resistant sector, which makes BMY stock a top pick for risk-averse investors.

Bristol-Myers should capitalize on the positive long-term growth catalyst because of its strong pipeline. Revlimid continued to be a strong performer for the company with 11% revenue growth, while Eliquis, sales grew 15% in the third quarter.

The company has over 50 early stage assets in its product pipeline. According to management, BMY believes its new product portfolio has the potential to generate over $25 billion in annual revenue.

BMY expects to grow revenue in the low single-digits each year through 2025. We expect future earnings-per-share to grow at a similar rate as the revenue growth rate. This should provide enough growth to allow the company to continue investing in its growth pipeline.

In the meantime, the company continues to reward shareholders with significant cash returns. In December, BMY raised its dividend by 10% and also approved a $15 billion share buyback. The buyback authorization represents more than 10% of the stock’s current market cap, implying a significant boost to EPS growth.

With a 3.5% dividend yield and a P/E ratio below 9, we believe BMY is a deep-value dividend stock. In our estimation, the combination of future earnings-per-share growth, dividends, and an expanding P/E multiple could fuel annual returns above 15% per year. This makes BMY stock a top pick for 2022. (Disclosure: Bob Ciura is long BMY.)

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