A lot of well-known dividend stocks have been hit by concerns over the long-term impact of weight-loss drugs. Some investors are worried these drugs (Ozempic, Wegovy, etc) are going to damage many long-standing industries.
Personally, I reckon the fears are overblown in many cases. So I’ve been snapping up a few of the beaten-up dividend stocks.
A top healthcare stock
One I’ve bought more of is healthcare company Smith & Nephew (LSE: SN.), a leading player in the joint replacement space.
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I reckon the sell-off here is pretty crazy. And it seems I’m not the only one with this view.
Recently, brokerage BTIG said the impact of weight-loss drugs may prove less than feared for companies making devices for orthopaedic procedures, specifically for joint reconstruction or knee-related surgeries.
Noting that painful/stiff joints (osteoarthritis) are degenerative – and far more directly related to age – it said it sees the discussions around impact of these drugs on demand for products by such companies as “premature”.
After the recent share price fall, Smith & Nephew shares offer a lot of value, to my mind. Currently, the P/E ratio is about 12.6 and the yield is about 3.3%. I think that’s a steal.
That said, the falling share price does add some risk.
A ‘Dividend King’
Another stock I’ve bought (new to my portfolio) is the legendary Coca-Cola (NYSE: KO). It recently fell from $63 to around $52.
The theory is that weight-loss drugs are going to reduce demand for fizzy drinks. I just can’t see these drugs having a major impact on Coca-Cola though.
In my view, people are still going to drink Coke (and its other products such as Sprite and Fanta) at restaurants, bars, parties, work and home.
It’s worth noting that RBC Capital Markets analysts believe current concerns about GLP-1 drugs reaching into non-healthcare sectors may be “exaggerated”.
“Doctor feedback suggests real-world compliance of the latest generation GLP-1 drugs may have its limitations“, they recently wrote.
Coca-Cola shares still aren’t cheap. Currently, the P/E ratio here is about 21. But this is a special company (a ‘Dividend King’ billing meaning it has registered 50+ consecutive dividend increases). So I’m happy to pay a higher price for it.
The current yield is about 3.3%.
An alcohol powerhouse
Finally, I’ve topped up my holding in Diageo (LSE: DGE). It’s the owner of Johnnie Walker, Tanqueray, Guinness and a stack of other well-known alcohol brands.
It seems GLP-1 drugs can also turn users off alcohol, so is a bit of a risk for Diageo.
However, again, I think the fears are probably overblown. At this stage, we don’t know how many people are going to be taking these drugs continuously (they need to be taken continuously to have the desired effects).
Meanwhile, Diageo has other things going for it. For example, it has significant exposure to emerging markets, where wealth is rising rapidly.
It also plans a focus to take tequila (the fastest-growing spirits category globally today) “around the world”.
Diageo shares currently have a P/E ratio of 18.8 and a yield of 2.7%.
I think these numbers are attractive, given the company’s incredible long-term track record when it comes to generating wealth for investors (20+ consecutive dividend increases).
