If you're considering investing in some pharmaceutical
companies for the safety of their outsized dividends, you might
want to get going on that. Others already have. Suddenly, several
big pharma stocks are a lot more expensive than they were just
MRK PE Ratio TTM
Shares of Merck (
), Pfizer (
), Eli Lilly & Co. (
) and Abbott Laboratories (
) have been trading at 52-week highs lately, with particularly
strong gains in the past five months, as seen in a
Dividends remain the key reason for drug company popularity on
Wall Street, especially as more investors worry about a
, even with the price increases, are 3% or higher in most cases.
Merck and Lilly carry dividend yields above 3.5% now.
MRK Dividend Yield
Despite their big yields, none of these companies pay big
portions of their income or cash on dividends. Look at the payout
ratios (based on income) of a few pharmas companies compared to
), another big, popular dividend stock. Or the cash dividend
payout ratio against a popular utility dividend. Lower ratios
suggest a higher likelihood of dividend hikes in the future.
MRK Payout Ratio TTM
MRK Cash Div. Payout Ratio TTM
But really, it's the drug news that's driven pharma PE ratios
toward the 20s after years at lower valuations. Merck's new
diabetes treatment Januvia is expected to generate more revenue -
some $9.7 billion - over the next seven years than any other new
drug, according to a
Reports from trials of Lilly's new Alzheimer's drug,
Solanezumab, are generally good.
) newer drugs Gilenya for multiple sclerosis and Afintor for
breast cancer are selling well, as are its generic drugs.
It's all good news for shares that have been depressed for
years now over worries that drug patent expirations would tank
sales growth in coming years.
Of course, there's always a cautionary tale to be told
whenever investing is involved, and this sector's is
Bristol-Meyers Squibb (
). Turns out its new drugs that were so promising last year may
never pay out big. It has dropped a hepatitis C treatment because
of safety concerns, and competition is heating up for its new
blood thinner even before it launches. Analysts are not
optimistic that this picture will improve soon.
Dee Gill is a contributing editor at YCharts, which
includes the just-released
YCharts Pro Platinum
for professional investors.