5 Big Pharma Stocks With Healthy Dividends
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Over the years, some of the best performing stocks have boasted long histories of paying healthy dividends to their shareholders. One industry where this can certainly hold true is in big pharma. In this article, I will discuss three big pharmaceutical stocks that continue to offer steady dividends, along with the potential for share growth over the short and long-term horizon.
Merck (NYSE: MRK) offers a number of different healthcare solutions, primarily via its prescription medications, vaccines, biologic therapies, and consumer care products. The company also provides animal health products and services. Some of the company's top prescription drugs include Singulair for asthma, Hyzaar and Cozaar for hypertension, Januvia for diabetes, and the cholesterol meds Zetia and Vytorin.
Suvorexant, the company's investigational insomnia drug candidate, was recently accepted for standard review by the FDA, and if the drug is approved, it will be the first in a new class of medications that are referred to as orexin receptor antagonists that will be used with patients who have difficulty either falling asleep or staying asleep. Merck is also continuing to seek approval for this medication in other countries as well as the U.S. Provided that the drug gains marketing approval, it would enter the United States market sector that was valued in 2010 at approximately $2.7 billion.
Other potential winners include the Vintafolide, a cancer drug that Merck purchased from Endocyte. The drug is presently in the Phase III study for its use for treatment of ovarian cancer, as well as in a Phase II study for non-small-cell lung cancer. Although Merck could face some competition from Eli Lilly in this area, the payoff could still be high for Merck as the ovarian cancer drug market is anticipated to reach approximately $2.3 billion over the next seven years.
Over the past year, Merck has continued to see expanding profit margins, along with an increase in its share price - which have helped to offset its recent subpar growth in its net income. Merck's P/E ratio stands at just under 19, which is above the overall S&P 500 P/E ratio of 17.7
During the past three years, Merck has greatly improved its operating cash flows, while at the same time improving its net income from $861 million in 2010 to nearly $868 billion at year end 2012. Merck's current payout ratio is approximately 53%. Throughout the past twelve months, Merck has generated over $9.5 billion in free cash flows, paying out just over $5 billion in dividends.
The company pays shareholders a dividend of 1.72 per share, equating to a dividend yield of 4.2%. In addition, Merck's share price is estimated to rise by nearly 15 percent over the next year.
Another big pharma that's been keeping a steady dividend yield, as well as a rising share price, is Eli Lilly (NYSE: LLY). Similar to Merck, Lilly develops, manufactures, and sells both human and animal health products in the U.S., as well as roughly 130 other countries. Of current interest is Lily's new molecular entities, or NMEs. Presently in Phase 3 clinical trial testing are the firm's new insulin glargine product, as well as others including Dulaglutide - an investigational diabetes drug, and depression drug Edivoxetine.
Lilly also recently announced that it had entered into an agreement with QIAGEN for the development and commercialization of companion diagnostics for pairing with its approved and investigational drugs across all therapeutic areas. This agreement will help to build upon the two companies' past work together. The goal of companion diagnostics is to essentially unlock the molecular information from patients for the purpose of guiding treatment decisions with regard to certain types of cancer and other diseases. While share price isn't expected to move much over the next 12 months, this big pharma pays investors a dividend of $1.96 per share for a dividend yield of 3.7%.
For one of the higher yielding big pharmaceutical firms, investors should look no further than GlaxoSmithKline (NYSE: GSK). This UK-based big pharma actually operates via three different segments. These include pharmaceuticals, consumer healthcare, and vaccines. With the pharmaceutical end accounting for nearly 70% of the company's overall business, GlaxoSmithKline's growth going forward will likely come in large part from expansion into emerging markets. This will help to build on the company's plans to capitalize on the growth that is occurring in many of the developing international economies worldwide.
GlaxoSmithKline has been quite active with its GLP-1 agonists, a diabetes medication that offers less risk to patients than some of the other new classes of medications. The company also recently gained FDA acceptance of its drug application for COPD management drug application called fluticasone furoate.
The company's P/E ratio stands at just over 15.6, with a 2.94 earnings per share. Even though over the next 12 months, share price is expected to move upwards by only about 2.7%, GlaxoSmithKline pays investors a very healthy dividend of $2.76 per share, equating to a nice dividend yield of 6%. Looking forward, GlaxoSmithKline has the makings of a very rewarding long term holding for its investors.
Two other pharmaceutical stocks to take note of are Pfizer (NYSE: PFE) and Abbott Laboratories (NYSE: ABT). Although Pfizer may not have a stellar track record when it comes to high dividend yield, the company has raised its dividend four times since halving it in 2009 during its purchase of Wyeth. Although the Canada Supreme Court recently ruled that Pfizer's patent for Viagra was invalid, the company has been making a comeback. Pfizer currently pays investors a quarterly dividend of $0.24 per share, providing a dividend yield of 3.5%. The company's shares are expected to rise by nearly 7% over the next 12 months.
Abbott, on the other hand, has had a struggling share price of late, hovering close to its 52-week low. This is likely due in large part to the spin-off of the company's proprietary drug segment early in 2013 which formed a new publicly traded company, AbbVie. Although shareholders have backed off somewhat, the move is considered to be positive, especially in light of the possible impact of Affordable Care Act.
The firm ended 2012's fourth quarter with revenue of nearly $11 billion - which was roughly $260 million higher than its estimates, although Abbott's primary revenue driver was Humira with a growth rate of approximately 24% during the quarter.
Abbott also has a number of new product launches on the horizon for 2013, including MitroClip and XIENCE - recently approved by the FDA as benefitting people who suffer from complex coronary anatomy. Although Abbott currently only pays a $0.56 dividend that provides a dividend yield of 1.6%, shares are expected to increase over the next year by over 7.5%.
The bottom line
Given the type of products that are produced by these big pharmas, combined with the types of diseases that they help to cure or manage, it is likely that many of these companies' end customers cannot go without their products - at least not for very long.
While some investors may shy away from investing in pharmaceutical firms, for those who do want to get in on the action - especially if a product becomes the "next big thing" - sticking with these established companies and their long product pipelines may just be the way to go.
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