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Are You Looking for a High-Growth Dividend Stock? Merck (MRK) Could Be a Great Choice

Zacks Equity Research
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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Merck in Focus

Headquartered in Kenilworth, Merck (MRK) is a Medical stock that has seen a price change of 10.72% so far this year. The pharmaceutical company is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 2.6% compared to the Large Cap Pharmaceuticals industry's yield of 3.04% and the S&P 500's yield of 1.92%.

In terms of dividend growth, the company's current annualized dividend of $2.20 is up 10.6% from last year. Over the last 5 years, Merck has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.51%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Merck's payout ratio is 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.

MRK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.73 per share, which represents a year-over-year growth rate of 8.99%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that MRK is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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