Dividend Increase: Merck (MRK) 2018

Merck has announced it’s 2018 dividend increase for the year.  The increase comes in at my expected $0.01 per share, bringing the quarterly dividend to $0.48 per share from the previous $0.47.  The penny increase represents a 2.13% increase to the dividend, slightly outpacing inflation.  At that dividend rate, Merck sports a yield of 3.37% based on the 12/13 closing price of $56.91.

This hikes brings the dividend increase streak for MRK up to 7 years and stretches the years that MRK has paid a dividend to 47 years straight.

Here is MRK’s dividend history going back to 2005 with a few graphs:

Looking back on the dividend to 2005, we see that MRK’s dividend has only grown an average rate of 1.85%.  If we back out the years on no increases and look at the dividend from 2012 going forward, the dividend has grown at 3.43%.  Still not the best dividend growth rate of any of the big drug makers.

MRK vs S&P500

So, the dividend growth has been lacking compared to it’s peers, but how does it stack up against the S&P500…

Not good.

Going back 10 years, MRK has easily been outperformed by the S&P500.  It’ll will be interesting to see comparisons for companies going back 10 years, as we will be looking at data using 2008 going forward…so how have companies performed since the recession going forward.  Again MRK is a loser here.

MRK Stats

Market Cap: $155 Billion

PE Ratio: 54.62

Payout Ratio: 180.77

Total Cash: $11.19 Billion

Total Debt: $27.02 Billion

Dividend Yield: 3.37%

Profit Margin: 7.15%

Beta: 0.80

When we look at the stats on MRK, we can see why we are even lucky to get a penny raise.  The payout ratio is ridiculously high at 180%.  Margins are weak at 7.15% and the PE is high.  With drug companies, it’s all about the pipeline.  What’s the next big drug to come out and gain FDA approval. MRK has a large concentration of pipeline products in cancer, but I have to say, ABBV has a much more promising pipeline.

Conclusion

The recent pullback in MRK may represent a short term opportunity to make a little profit to the tune of $2-3 per share, but anyone looking for a better long term prospect should look at ABBV or JNJ.  Not only do they have more impressive pipelines, they are better values based on PE multiples and have better dividend growth prospects as well.  I should add, that I am long all 3 positions.

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Readers Comments (2)

  1. That PE ratio is definitely alarming. Do you think their pipeline will change their business outlook in the next 5 years?

    • They need some of their drugs to move into the late stages and their late stage drugs to get approval. That PE is high and look at that payout ratio. If sales and profits don’t grow, somethings gotta give and it will probably be the dividend. Check out the number or JNJ and ABBV, much easier to sleep at night and better pipelines.

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