Can These Dividend Stocks Beat the Market Again in 2026?

CVS Health raised its 2026 guidance for revenue, operating income and EPS and is refocusing by significantly rolling back its Medicare Advantage business to prioritize profitable growth; the stock trades at about 11.2x forward earnings and yields ~3.3% after a 33% dividend increase over five years. Amgen faces near-term downside from a recent denosumab patent cliff—denosumab generated $1.7 billion in Q3 (~17.6% of $9.6 billion revenue) and biosimilar competition is expected to pressure results—but the shares trade around 14.9x forward EPS, yield ~3%, and the company has late-stage pipeline catalysts including rocatinlimab, ongoing traction for Tezspire/Tepezza, and phase 3 MariTide studies. Investors should weigh CVS's improved guidance and valuation against Amgen's near-term revenue headwinds offset by potential long-term pipeline upside and steady dividends.

Analysis

Market structure: CVS is the primary beneficiary—its pharmacy network, PBM/insurance mix and a 3.3% forward yield should gain from a 2026 margin reset as it trims low‑margin MA exposure; Amgen faces direct revenue pressure (denosumab ≈17.6% of revenue) from biosimilar entrants, compressing its near‑term pricing power. Competitive dynamics favor diversified, cash‑flowing retail+insurance models over single‑product biologic franchises; expect upward pressure on CVS credit and downward pressure on AMGN credit spreads if revenue misses persist.

Risk assessment: Tail risks include accelerated biosimilar uptake (loss of >50% denosumab share within 6–12 months), adverse CMS policy on MA reimbursement, or a failed late‑stage pipeline readout at Amgen; these could move stock prices 15–30% quickly. Immediate catalysts: CVS Q1/2026 guidance updates and MA enrollment figures (next 30–90 days); Amgen catalysts: regulatory filings (rocatinlimab) and next 6–12 month readouts for MariTide—monitor EPS revisions >10% as trigger points.

Trade implications: Tactical overweight CVS (value + income) while using options to hedge Amgen’s near‑term cliff: buy 3–6 month put spreads on AMGN to capture a 10–25% downside scenario, or run a long CVS / short AMGN pair trade equal‑notional for 6–12 months. Cross‑asset: expect AMGN implied vol rise (buy protection), modest tightening in CVS corporate spreads; consider shifting 2–3% portfolio weight from cyclicals into defensive healthcare.

Contrarian angles: Consensus understates CVS’s ecosystem re‑rating if margins recover >200–300 bps and EPS growth reaccelerates—this could drive a re‑rating from 11.2x to 14–16x forward P/E (20–40% upside over 12–24 months). Conversely, the market may overstate permanent damage to Amgen; if rocatinlimab/MariTide deliver positive regulatory readouts within 12–24 months, AMGN could rebound >25%, so size directional shorts/puts modestly and favor time‑limited structures.

Key Decisions for Investors

• Establish a 2–3% portfolio long position in CVS (CVS) executed in 3 tranches over 4 weeks; add on pullbacks >10%. Trim or stop‑loss 50% if management cuts 2026 EPS guidance by >10% or if dividend yield compresses below 2.6%.
• Initiate a tactical hedge on Amgen (AMGN): buy a 3–6 month put vertical sized to 0.5–1% portfolio notional (example: −10% / −20% strikes) to capture a 10–25% downside from biosimilar erosion; unwind after next two major pipeline readouts or if organic ex‑denosumab growth exceeds +5% sequentially.
• Run a pair trade: long CVS / short AMGN equal‑notional at 1–2% portfolio weight to express margin recovery vs patent cliff; target horizon 6–12 months and close if the spread narrows to <5 percentage points in forward P/E differential or if AMGN reports denosumab revenue decline <15% y/y.
• Rotate 2–3% of portfolio from high‑beta cyclicals into defensive healthcare/insurer exposures; if CVS corporate bond spreads widen >25 bps vs IG average, consider selectively buying IG paper for yield pickup while equity position builds.