Merck (MRK) is a Top Dividend Stock Right Now: Should You Buy?
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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Merck in Focus
Headquartered in Kenilworth, Merck (MRK) is a Medical stock that has seen a price change of -11.26% so far this year. The pharmaceutical company is paying out a dividend of $0.61 per share at the moment, with a dividend yield of 3.02% compared to the Large Cap Pharmaceuticals industry's yield of 2.29% and the S&P 500's yield of 1.62%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.44 is up 8% 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 7.19%. 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 44%. This 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 2020 is $5.68 per share, representing a year-over-year earnings growth rate of 9.44%.
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.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.