3 Big Pharma Dividend Darlings
Post on 12-Jul-2015
3 Big Pharma Dividend Darlings3 Dividend Darlings You Need to Know AboutDrug companies are staples in dividend investors' portfolios thanks to their predictable demand and solid cash flow. However, many drug companies, includingBristol-Myers, Johnson & Johnson, and Merck have seen dividend yields slide as markets have pushed shares to new highs.Although it may be tempting to simply buy those drug companies with the highest dividend yield, investors should consider how patent expiration and fast growing products may impact future dividend payments before buying shares.These three dividend darlings offer investors an intriguing blend of income and growth catalysts that could send dividend payouts higher.1. Bristol-MyersBristol hasnt escaped the patent cliff. Plavix lost exclusivity in 2012, putting $2.5 billion in sales up for grabs and forcing a major restructuring to shore up margin.
However, offsetting Plavix are Bristols fast growing Yervoy, Sprycel, and Orencia.Yervoy sales grew 36% to $960 million in 2013Sprycel sales grew 26% to $1.28 billion in 2013Orencia sales grew 23% to $1.44 billion in 2013
Bristol-Myers 2.8% forward dividend yield is supported by fast-growing cancer drugsBristol-MyersInvestors should watch to see if Bristols cash dividend payout ratio, which measures operating cash minus capex and preferred dividends falls. If so, there could be room for future dividend hikes.
2. Johnson & JohnsonJohnson lost patent protection on $2.27 billion worth of sales last year when patents on heartburn medication Aciphex and anemia drug Procrit expired. Johnson also lost protection for its ADHD drug Concerta in 2011
However, offsetting those losses are fast-growing new blockbusters Xarelto, Zytiga, and Stelara.
Xarelto sales grew from $239 million to $864 million in 2013Zytiga sales grew 77% to $1.7 billion in 2013Stelara sales grew 47% to $1.5 billion in 2013
Johnsons 2.7% forward dividend yield is on solid footing thanks to new blockbustersJohnson & JohnsonJohnsons cash dividend payout ratio, which measures operating cash minus capex and preferred dividends falls, is healthy at 57%. That suggests there could be room for future dividend hikes.
3. Merck & CompanyMerck lost exclusivity for its $5 billion-a-year Singulair in 2012. Sales of Singulair toppled nearly 70% to $1.2 billion in 2013, forcing full year sales down 7% to $44 billion.
Merck also lost protection on its $900 million-a-year brain-cancer drug Temodar, and its $600 million-a-year drug Maxalt last year.
However, offsetting those headwinds are Gardasil, Isentress, and Zostavax.Gardasil sales grew 14% to $1.8 billion in 2013Isentress sales grew 16% to $442 million in 2013Zostavax sales grew 16% to $758 million in 2013
Mercks 3.1% forward dividend yield is the highest of the three, but comes with more risk.Merck & CompanyMercks cash dividend payout ratio is a solid 52%, but a potential sales of its nutrition and animal health business could give Merck the room to return more money to shareholders.
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