Are You Looking for a High-Growth Dividend Stock? Merck (MRK) Could Be a Great Choice
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Merck in Focus
Merck (MRK) is headquartered in Kenilworth, and is in the Medical sector. The stock has seen a price change of 3.02% since the start of the year. The pharmaceutical company is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 2.79% compared to the Large Cap Pharmaceuticals industry's yield of 2.98% and the S&P 500's yield of 1.88%.
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 3.51%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 51%. This means it paid out 51% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MRK expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.72 per share, representing a year-over-year earnings growth rate of 8.76%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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 also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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