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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
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 -5.43%. The pharmaceutical company is paying out a dividend of $0.65 per share at the moment, with a dividend yield of 3.36% compared to the Large Cap Pharmaceuticals industry's yield of 2.4% and the S&P 500's yield of 1.27%.
Looking at dividend growth, the company's current annualized dividend of $2.60 is up 4.8% from last year. Merck has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.50%. 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 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
MRK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $6.56 per share, representing a year-over-year earnings growth rate of 10.44%.
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.
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. With that in mind, MRK is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Merck & Co., Inc. (MRK) : Free Stock Analysis Report
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