Investors looking for ways to pump up their passive income streams might want to turn their heads toward the pharmaceutical industry. At recent prices, you can buy shares of Merck (MRK -0.88%) that offer a yield above 3%, and shares of Pfizer (PFE -0.35%) offer a yield above 6%.

Which of these two high-yield dividend payers is best for your portfolio? Let's weigh their strong points against some of the challenges they face, to see which stock is a better buy now.

The case for Merck

Shares of Merck have fallen about 34% from a peak they reached last year. The stock is under pressure because its lead drug, a cancer immunotherapy called Keytruda, is expected to lose patent-protected market exclusivity in the U.S. and Chinese markets in 2028.

Patent protections regarding Keytruda in Europe are expected to expire in 2031, and incoming biosimilar competition could leave an enormous gap to fill. Fourth-quarter sales of Keytruda grew 19% year over year to an annualized $31.3 billion. That's a little over half of Merck's total revenue stream.

Now that Merck stock has been beaten down, it offers a higher yield than we usually see from the well-established pharmaceutical giant. At recent prices, the stock offers a 3.7% yield.

Last March, the Food and Drug Administration (FDA) approved Winrevair, a treatment for adults with pulmonary arterial hypertension. Fourth-quarter Winrevair sales climbed to an annualized $800 million and could go a long way toward offsetting upcoming Keytruda losses. Analyst estimates suggest Winrevair sales could reach $4 billion by 2029.

Biologic drugs like Keytruda typically lose around 50% of sales within the first couple of years following a loss of patent-protected exclusivity. Annual Keytruda sales already exceed $31 billion, so Merck will need at least a few more Winrevair-sized drug launches to offset the upcoming losses. Behind Winrevair, though, there isn't much in Merck's pipeline to get excited about.

Behind Winrevair, the most promising clinical-stage program in Merck's pipeline is a cholesterol drug tentatively named MK-0616. The company started a 17,000-patient phase 3 program to test MK-0616 in 2023, and initial results could be ready soon.

MK-0616 is an oral PCSK9 inhibitor that greatly boosts the liver's ability to absorb low-density lipoprotein cholesterol. Repatha, an injectable PCSK9 inhibitor from Amgen, grew sales by 36% last year to $2.2 billion. Even if Merck's orally available option goes on to dominate the PCSK9 space, the company needs several more blockbuster drug launches before investors can comfortably expect a continuation of its dividend-payout raising streak after Keytruda loses market exclusivity.

The case for Pfizer

Shares of Pfizer are down by more than half from an all-time high the stock set in 2021. Fortunately for income-seeking investors, its dividend payout is moving in the right direction.

Last December, Pfizer raised its payout for the 16th consecutive year to $0.43 per share. At recent prices, it offers a juicy 6.7% yield.

Often, stocks offering ultrahigh yields of more than four times the market average are on the edge of a dividend cut. This doesn't appear to be the case at Pfizer. The pharmaceutical giant expects adjusted earnings to land in a range between $2.80 and $3.00 per share this year. That's more than it needs to meet a dividend commitment it recently raised to $1.72 per share.

Sales of Pfizer's COVID-19 treatment and vaccine are down a long way from their peak, but the worst is over. Combined sales of Paxlovid and Comirnaty fell by 11% to a combined $11.1 billion in 2024.

Eliquis, a blood thinner marketed in partnership with Bristol Myers Squibb, is Pfizer's largest revenue stream at the moment. It could begin competing with generic versions in the U.S. market in 2028, but the gap it leaves won't be too difficult to fill. Eliquis is responsible for only about 10.3% of Pfizer's total revenue stream.

Pfizer has several recently launched treatments in position to offset upcoming Eliquis losses. For example, Padcev, a new cancer treatment, racked up an annualized $1.8 billion in the fourth quarter and could climb much higher. The FDA approved it to treat frontline bladder cancer patients in 2023, which is expected to push annual sales past $8 billion by 2030.

The better buy now

Compared to Merck, Pfizer's upcoming patent cliffs will be relatively easy to manage. While Pfizer seems likely to continue its dividend-raising streak through the coming decade, the future of Merck's payout is much less certain.

If these two stocks offered identical yields, Pfizer would still be the better buy. With a much higher yield that seems likely to continue rising for at least another decade, Pfizer is clearly the better dividend stock to buy now.