Drug Dividend Ideas: Merck Boasts Big Drug Pipeline & Raises Dividend

Drug Dividend Ideas: Merck Boasts Big Drug Pipeline & Raises Dividend

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For the first time since 2004, Merck & Co (MRK) raised its quarterly dividend while touting a big late-stage drug program. Like any company increasing its dividend, this signals solid confidence from management in the company’s success.

The dividend increase was rather significant, raising the quarterly payment 11% to 42 cents per common share. The last increase was by 1 cent in 2004.

New Drugs on the Horizon

In the same meeting with analysts, Merck’s head of research Peter Kim said the company plans to file eight new drugs with the FDA for approval over 2012 and 2013.

According to Bloomberg, “they include new drugs for osteoporosis, chronic insomnia and atherosclerosis, as well as a new cervical cancer vaccine that will improve upon Merck’s existing Gardasil by protecting against several additional strains of the human papillomavirus.”

And this isn’t the extent of their late-stage pipeline. Fierce Biotech claims Merck has 19 drugs in Phase III programs “for a range of diseases such as cancer, cardiovascular disease and osteoporosis.”

The company also said they received approval for five new drugs while raising sales by almost $2 billion this year through September. This comes just in time – next year Merck loses patent-exclusivity of their best-selling drug Singulair, a treatment for asthma.

Investing Ideas

If you’re interested in the healthcare sector and you like dividend stocks, you may be interested in the following list.

We ran a screen on the healthcare sector for stocks paying dividend yields above 1% and sustainable payout ratios below 50%. We screened these stocks for those with high profitability, beating their industry peers on gross, operating, and pretax margins.

Do you think Merck or these other stocks pay reliable dividends? List sorted by dividend yield.


1. Eli Lilly & Co. (LLY, Earnings, Analysts, Financials): Develops, manufactures, and sells pharmaceutical products worldwide. Market cap of $43.82B. Dividend yield at 5.18%, payout ratio at 48.65%. TTM gross margin at 85.32% vs. industry gross margin at 70.62%. TTM operating margin at 27.06% vs. industry operating margin at 19.36%. TTM pretax margin at 23.41% vs. industry pretax margin at 15.68%. The stock has gained 12.68% over the last year


2. Aetna Inc. (AET, Earnings, Analysts, Financials): Operates as a diversified health care benefits company in the United States. Market cap of $14.29B. Dividend yield at 1.52%, payout ratio at 9.19%. TTM gross margin at 29.65% vs. industry gross margin at 19.71%. TTM operating margin at 9.68% vs. industry operating margin at 7.95%. TTM pretax margin at 8.25% vs. industry pretax margin at 6.29%. Might be undervalued at current levels, with a PEG ratio at 0.76, and P/FCF ratio at 6.47. The stock has gained 25.08% over the last year.


3. Unitedhealth Group, Inc. (UNH, Earnings, Analysts, Financials): Provides healthcare services in the United States. Market cap of $49.01B. Dividend yield at 1.43%, payout ratio at 12.56%. TTM gross margin at 24.69% vs. industry gross margin at 19.74%. TTM operating margin at 8.39% vs. industry operating margin at 7.99%. TTM pretax margin at 7.71% vs. industry pretax margin at 6.33%. Might be undervalued at current levels, with a PEG ratio at 0.89, and P/FCF ratio at 6.93. The stock has gained 24.15% over the last year.


(Written by Alexander Crawford. Profitability data sourced from Fidelity, all other data sourced from Finviz.)


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