Novo Nordisk's dividend story is changing -- here's what investors are missing

Novo Nordisk (NYSE: NVO) is a large drug maker that built its business around treating diabetes. That was how it got into the GLP-1 weight-loss drug space. However, the opportunity for weight-loss drugs is much larger than the diabetes market. The company is working through a transition year, but if you are a dividend investor, that could be your opportunity to buy this high-yield stock. Here's what you need to know.

How attractive is Novo Nordisk's dividend yield?

Novo Nordisk's dividend yield is 3.5%. That is much higher than the roughly 1% yield you'd collect from an S&P 500 index (SNPINDEX: ^GSPC) fund. And it is also more than twice the average pharmaceutical stock yield, which is roughly 1.5%. If you are looking for a high-yield drug stock, Novo Nordisk fits the bill.

That said, you have to ask about dividend safety before buying a high-yield stock. Novo Nordisk looks good there, too, with a dividend payout ratio of roughly 40%. That's toward the high side of the recent trend, but not at all a worrying figure. For reference, before its GLP-1 weight-loss drug windfall, Eli Lilly (NYSE: LLY) had a payout ratio of around 80%. GLP-1 drugs are important to Novo Nordisk's dividend story.

Novo Nordisk sells drugs that people take forever

Novo Nordisk's historical business centered on insulin, which diabetics need regularly. Thus, the company generated a material amount of recurring income. Although the drug sector is still emerging, the GLP-1 opportunity is very similar. GLP-1 drugs can help people loss weight, but they need to take the drugs for the rest of their lives.

Novo Nordisk was the first to market with a GLP-1 drug, Wegovy, but Eli Lilly's GLP-1 options, Mounjaro and Zepbound, were more effective. Novo Nordisk also struggled to meet demand, which allowed generic versions of its GLP-1 drug to enter the U.S. market. That said, Novo Nordisk's new GLP-1 pill, which is just a different delivery form of Wegovy, appears to be more effective than Eli Lilly's Foundayo, which is a completely different drug from Mounjaro and Zepbound. And Novo Nordisk has largely solved its supply issues.

Still, the company entered 2026 warning investors that it would be a transition year. That is because it had agreed to lower prices in the U.S. market, and generic competition was ramping up in India. Revenue is going to be under pressure this year. However, there's an important shift taking place.

The market for weight-loss drugs is huge. While lower prices are a headwind right now, they ultimately open the drug up to more customers. Novo Nordisk is, basically, looking to lean into volume-driven growth. That works because GLP-1 sales are recurring, similar to insulin's demand profile. Wall Street remains in a show-me mood, which is why the yield is so large relative to the average drug stock. However, Novo Nordisk appears to be building an annuity-like income stream in GLP-1 drugs to complement its annuity-like income stream in insulin.

Novo Nordisk is seeing strong demand for its GLP-1 pill

Novo Nordisk's Wegovy pill has seen stronger early demand than its Wegovy shot. That is a very good sign, but not surprising. People prefer to take pills over shots. Still, it suggests the company's outlook is strong, given its focus on volume.

Meanwhile, dividend investors will appreciate that the stock's price-to-sales, price-to-earnings, and price-to-book value ratios are all below their five-year averages. So not only are investors getting an attractive yield, but the stock also looks like it is on sale right now, too. Competition in the drug sector is fierce, so you'll want to keep a close eye on GLP-1 drug developments if you buy the stock. But given the size of the weight-loss market, there's likely to be room for multiple competitors.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Novo Nordisk. The Motley Fool has a disclosure policy.