Why I'd sell this FTSE 100 dividend stock to buy AstraZeneca

The unpredictable nature of drugs development means that AstraZeneca(LSE: AZN) is a share not without a degree of considerable risk.

The Cambridge company was once considered the runt of the litter when it came to drugs development and, while chief executive Pascal Soriot vowed to transform its approach to R&D shortly after he took the reins in 2012, AstraZeneca's performance at the lab bench has not been as impressive as many had hoped.

Its share price took a pasting last year after the much-publicised failure of its Mystic lung cancer treatment trials. Setbacks like these can result in a fortune in extra development costs and lost revenues and is particularly bad news for AstraZeneca whose drugs pipeline was already playing catch-up to its rivals, and whose top line continues to be smacked by patent expirations on a series of blockbuster sales drivers.

Big yields

Its lagging progress in trials means that AstraZeneca is on course to endure another earnings drop in 2018, or so say City analysts, an 18% reversal currently being predicted.

However, the FTSE 100 business is expected to finally see sales and thus earnings move higher from 2019, a 13% improvement currently being forecasted.

And thanks to these predictions of an imminent profits rise, not to mention its robust balance sheet, the medical mammoth is predicted to keep the dividend locked at 280 cents per share in the current year before lifting it to 285 cents next year, meaning the yield stands at an impressive 4.1% through to the close of 2019.

Now, a forward P/E ratio of 20 times may be too strong for many given that AstraZeneca has already endured significant R&D troubles and that further woes cannot be ruled out. But given that newsflow surrounding its drugs trials has been for the large part pretty impressive of late -- revenues are showing signs of picking up steam in recent months, and sales in key areas like oncology, as well as in emerging markets, are steaming higher as well (in China sales boomed 33% in October-December) -- I reckon the company could finally be on the cusp of greatness.

Out of puff

While AstraZeneca still has some way to go to fulfil its earlier promise, I would be much happier to splash the cash on the pharma giant than another Footsie share, Imperial Brands (LSE: IMB), where falling demand for cigarettes hangs like a ghoulish spectre over the business.

The addictive nature of its products meant that the tobacco titan was once a reliable bet for those seeking brilliant dividend growth year after year. However, with legislators around the world stepping up their attack on the sector and exacerbating public concerns over the health implications of these combustible products, the nailed-on profits growth of yesteryear is now a distant memory.

City analysts may well be expecting dividends of 188.2p and 203.8p per share in the years to September 2018 and 2019 respectively, up from 170.7p last year and figures that yield 7.8% and 8.4%. But I am concerned by predictions that earnings will basically stagnate during this time, putting predictions of such splendid payout increases in some jeopardy.

With doubts also emerging over the revenues-driving power of e-cigarettes and other so-called next generation products, I am staying well away from the likes of Imperial Brands, even in spite of its low forward P/E multiple of 9.1 times.

Buy-And-Hold Investing

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.