3 Dividend Darlings You Need to Know About
• Drug companies are staples in dividend investors' portfolios
thanks to their predictable demand and solid cash flow.
However, many drug companies, including Bristol-
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
• Bristol hasn’t 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 Bristol’s fast growing Yervoy, Sprycel, and
– Yervoy sales grew 36% to $960 million in 2013
– Sprycel sales grew 26% to $1.28 billion in 2013
– Orencia sales grew 23% to $1.44 billion in 2013
Bristol-Myers 2.8% forward dividend yield is
supported by fast-growing cancer drugs
Investors should watch to see if Bristol’s 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 & Johnson
• Johnson 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
• However, offsetting those losses are fast-growing new blockbusters
Xarelto, Zytiga, and Stelara.
– Xarelto sales grew from $239 million to $864 million in 2013
– Zytiga sales grew 77% to $1.7 billion in 2013
– Stelara sales grew 47% to $1.5 billion in 2013
Johnson’s 2.7% forward dividend yield is on solid
footing thanks to new blockbusters
Johnson & Johnson
Johnson’s 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 & Company
• Merck 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 2013
– Isentress sales grew 16% to $442 million in 2013
– Zostavax sales grew 16% to $758 million in 2013
Merck’s 3.1% forward dividend yield is the highest
of the three, but comes with more risk.
Merck & Company
Merck’s 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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