Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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
Based in Kenilworth, Merck (MRK) is in the Medical sector, and so far this year, shares have seen a price change of 12.17%. The pharmaceutical company is currently shelling out a dividend of $0.55 per share, with a dividend yield of 2.57%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.83% and the S&P 500's yield of 1.95%.
In terms of dividend growth, the company's current annualized dividend of $2.20 is up 10.6% from last year. In the past five-year period, Merck has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.01%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Merck's current payout ratio is 46%. This means it paid out 46% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MRK for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.88 per share, with earnings expected to increase 12.44% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MRK presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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Merck & Co., Inc. (MRK) : Free Stock Analysis Report
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