Dividend Increase: Merck & Co. (MRK)

Merck announced another small increase to their dividend for 2017.  The $0.01 increase represents a 2.17% increase for the year and brings the quarterly dividend to $0.47 per share from 2016’s $0.46.  This marks the 6th straight year of an increase in the dividend for MRK after a long streak of maintaining the dividend at $0.38 quarterly.  This increase was lower than my expectations of a $0.02 increase or 4.35% increase.  The current dividend yield for MRK is at 3.01% (12/16/2016).

Merck Dividend History:

From what I am able to dig up, MRK has been paying a dividend for at least 46 years and I can find info dating back to 1980.  Unfortunately, prior to 1980 the info is in short supply.  MRK has a 6 year streak of increasing its dividend.  Looking back at the last 13 years, the dividend has grown at a rate of 1.83% per year.  If we look purely at the last 6 years that dividend growth rate is a more respectable 3.65%.  That 13 year growth rate of 1.83% is not really keeping pace with low inflation.

For 2018, I’m lowering my expectation for just a $0.01 increase, based on the last 5 years history.  This would reflect a 2.12% increase for 2018.

Company Data:

Market Cap: $172 Billion

Dividend Yield: 3.01%

Payout Ratio: 93.88%

Revenue: $39.91 Billion

Cash: $13 Billion

Debt: $25 Billion

P/E Ratio: 34.25

I won’t lie, I hate that high payout ratio.  At that high of a rate, there is little room for bigger increases.  It means profits will have to grow.  I won’t go into pipeline, you can read my recent Abbvie (ABBV) write up on the importance of pipeline for big pharma companies.  They can also try to grow their bottom line with some acquisitions as well.  Also, that PE is high in comparison to the competition.

Performance vs S&P500:

mrk-vs-sp500

The unfortunate news is the underperformance of MRK vs the S&P500 over the last 10 years.   For the most part, MRK has maintained an equal performance with the S&P500, but in the last 3 years the difference between the 2 has been different.

So high payout ratio, high PE, underperformance vs the S&P500.

Conclusion:

There may be some better bargains out there than MRK.  Check out my write up on ABBV.  JNJ also comes to mind with its recent pullback and solid/consistent dividend history.  I’m long a few lots of MRK for the time being, but that may change.

 

 

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