Drugs go off patent, leading to generic competition, which lowers revenue substantially, which in turn hurts cash flow. That cash is needed to pay the dividends; they don't grow on trees, you know.
The dividends are at such a high level now that just sustaining them makes the stock a decent risk-reward proposition. The dividend by itself won't make for a stellar investment, but it should provide a floor for how low the stock can go, which reduces risk.
Then once investors are convinced that the pharmaceutical companies can grow again, they'll increase their valuation metrics and the share price will increase. Dividend yields might return to lower historical levels, but if the companies are actually growing again, dividends will also increase, which results in more capital appreciation. It's a nice cycle that can only benefit investors.
Here are the best big pharma dividend stocks:
Eli Lilly & Co. (NYSE: LLY) has a market capitalization of $46.24 billion. The company employs 38,380 people, generates revenues of $23,076.00 million and has a net income of $5,069.50 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $7,793.60 million. Because of these figures, the EBITDA margin is 33.77 percent (operating margin 28.28 percent and the net profit margin finally 21.97 percent).
The total debt representing 22.34 percent of the company’s assets and the total debt in relation to the equity amounts to 55.77 percent. Due to the financial situation, a return on equity of 46.20 percent was realized. Twelve trailing months earnings per share reached a value of $4.19. Last fiscal year, the company paid $1.96 in form of dividends to shareholders.
Here are the price ratios of the company: The P/E ratio is 9.54, Price/Sales 2.00 and Price/Book ratio 3.71. Dividend Yield: 4.91 percent. The beta ratio is 0.72.
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| Long-Term Stock History Chart Of Eli Lilly & Co. (Click to enlarge) |
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| Long-Term History of Dividends from Eli Lilly & Co. (NYSE: LLY) (Click to enlarge) |
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| Long-Term Dividend Yield History of Eli Lilly & Co. (NYSE: LLY) (Click to enlarge) |
Bristol Myers Squibb (NYSE: BMY) has a market capitalization of $57.28 billion. The company employs 27,000 people, generates revenues of $19,484.00 million and has a net income of $4,513.00 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $6,566.00 million. Because of these figures, the EBITDA margin is 33.70 percent (operating margin 31.16 percent and the net profit margin finally 23.16 percent).
The total debt representing 17.52 percent of the company’s assets and the total debt in relation to the equity amounts to 34.65 percent. Due to the financial situation, a return on equity of 20.23 percent was realized. Twelve trailing months earnings per share reached a value of $1.94. Last fiscal year, the company paid $1.29 in form of dividends to shareholders.
Here are the price ratios of the company: The P/E ratio is 17.42, Price/Sales 2.94 and Price/Book ratio 3.65. Dividend Yield: 4.02 percent. The beta ratio is 0.50.
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| Long-Term Stock History Chart Of Bristol Myers Squibb Co. (Click to enlarge) |
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| Long-Term History of Dividends from Bristol Myers Squibb Co. (NYSE: BMY) (Click to enlarge) |
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| Long-Term Dividend Yield History of Bristol Myers Squibb Co. (NYSE: BMY) (Click to enlarge) |
Merck & Co. (NYSE: MRK) has a market capitalization of $116.80 billion. The company employs 90,000 people, generates revenues of $45,987.00 million and has a net income of $982.00 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $9,250.00 million. Because of these figures, the EBITDA margin is 20.11 percent (operating margin 3.59 percent and the net profit margin finally 2.14 percent).
The total debt representing 16.90 percent of the company’s assets and the total debt in relation to the equity amounts to 32.89 percent. Due to the financial situation, a return on equity of 1.51 percent was realized. Twelve trailing months earnings per share reached a value of $1.46. Last fiscal year, the company paid $1.52 in form of dividends to shareholders.
Here are the price ratios of the company: The P/E ratio is 26.18, Price/Sales 2.54 and Price/Book ratio 2.17. Dividend Yield: 4.38 percent. The beta ratio is 0.67.
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| Long-Term Stock History Chart Of Merck & Co., Inc. (Click to enlarge) |
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| Long-Term History of Dividends from Merck & Co., Inc. (NYSE: MRK) (Click to enlarge) |
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| Long-Term Dividend Yield History of Merck & Co., Inc. (NYSE: MRK) (Click to enlarge) |
Of the three, I like Bristol-Myers the best. It has the richest valuation and the lowest dividend yield, but there's a reason for that. Bristol-Myers has the best pipeline of the bunch and therefore the best chance of turning things around post-patent cliff. I'm going to go with Buffett on this: A great company at a fair price trumps a lower quality company with a lower valuation.
Idea from
Fool.com
