Warsh's Rate Hike Warning: What It Means for Big Pharma Dividend Stocks

The Federal Reserve's recent rate hike under new Chairman Kevin Warsh has sparked concerns about the impact on big pharma dividend stocks. In a September speech, Warsh stated that inflation 'is too high and has been for too long,' implying that rates will need to rise further to combat inflation.

This potential rate hike could pose a threat to companies like Pfizer (PFE), AbbVie (ABBV), and Bristol Myers Squibb (BMY), which investors rely on for regular, stable cash flows. However, history suggests that even sustained rate hikes may not be enough to break these players.

The 10-year U.S. Treasury note currently yields 5.17% annually, and further rate hikes could result in higher yields. While this provides an alternative to lower-yielding investments with more risk, it also means increased competition for dividend stocks. For instance, Treasury bonds currently offer a yield of 6.1% compared to Pfizer's forward dividend yield of 6.1%, Bristol Myers Squibb's is 4.1%, and AbbVie's is 2.6%.

A closer look at the past rate-hike cycle shows that rates were not the main reason for the mixed performance of these stocks in 2022. In fact, AbbVie's stock rose by 19%, while Bristol Myers Squibb gained 15%. Pfizer fell by 13% despite its strong revenue in 2022.