Markets

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 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

Headquartered in Kenilworth, Merck (MRK) is a Medical stock that has seen a price change of 9.67% so far this year. The pharmaceutical company is currently shelling out a dividend of $0.55 per share, with a dividend yield of 2.63%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.75% and the S&P 500's yield of 1.89%.

In terms of dividend growth, the company's current annualized dividend of $2.20 is up 10.6% 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 4.36%. 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 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.

MRK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.91 per share, with earnings expected to increase 13.13% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.