Johnson & Johnson

Dividend yield (as of September 2015): 3.2%

With a strong brand recognition, Johnson & Johnson has diverse streams of revenues and a rich pipeline of drugs. It manufactures medical devices and drugs related to immunology and psoriasis, and exerts effort in research and development endeavors. Despite product recalls and legal actions for production and design issues, the firm recorded increasing operating cash flows. Johnson & Johnson earned $34 billion in cash this year, which can be used to pay out stable (or higher) dividends in the future.

AbbVie, Inc.

Dividend yield (as of September 2015): 3.4%

The drug manufacturer is slated to introduce a strong line of drugs in 2015-2016 alongside Humira, one of the best immunology drugs on the market. Humira, amidst its low penetration rate, represents approximately 50% of AbbVie’s sales and is on course to demonstrate substantial growth in the next two to three years. The firm’s patent will expire in 2016-2018 in the United States and Europe. So, it is preparing to introduce other drugs such as treatment for hepatitis C. The market offers limited alternatives to treat hepatitis C, and the AbbVie drug will likely be a driver for further excess returns for the company. As of September 2015, AbbVie has $8 billion in cash on its balance sheet.

Merck & Co., Inc.

Dividend yield (as of September 2015): 3.4%

The firm has endured substantial growth slowdown due to patent cliff and rising competition from generic drugs. But their R&D pursuits, alongside the launch of drugs for cancer treatment and anesthesia, as well as vaccines and drugs for diabetes and HIV should help improve its prospects in the future. Since its merger with Schering-Plough in 2009, Merck has instituted cost-saving initiatives to ease the effect of losing patents for well-known drugs. However, the firm continues to face stiff competition for immunology drugs and sustains patent losses, which can hamper its progression.

Pfizer, Inc.

Dividend yield (as of September 2015): 3.4%

Having a broad experience in developing and commercializing several drugs, Pfizer is an attractive investment for capital appreciation and income investing. The firm is also known for a long list of patent-protected drugs, strong cash flows, and large economies of scale. The company unveiled many drugs for treating cancer and heart diseases, and vaccines as well. But the expiration of patents for Lipitor and Celebrex can affect its future performance. On the other hand, because of mergers, the manufacturer has obtained patented drugs for arthritis and meningitis, which have less competition. With $30.3 billion in cash, Pfizer can finance its investment projects and yield shareholder returns through dividends.

GlaxoSmithKline Plc

Dividend yield (as of September 2015): 6.2%

GlaxoSmithKline Plc focuses on researching and developing drugs with longer development cycles. Many of its existing drugs are protected by patents. It also has an extensive pipeline of new innovative products. Since its products encompasses a wide spectrum of therapeutic applications, the company won’t likely experience problems in the event one of its products flop. But Advair, a product accounting for 20% of its revenues, may pose a risk if its generic versions are approved and offered to the general public. Today, the firm is diverting its focus towards emerging markets, despite tighter regulatory challenges and efforts to uphold its drug portfolio from patent infringement. In 2012, the firm initiated a cost-cutting program, which should continue help them generate more profits from existing projects, making GSK an attractive addition to the portfolios of investors interested in income investing.