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Since the beginning of the year all biotech and pharma companies have been making excellent gains, however, the biotech companies such as Celgene (CELG), Gilead (GILD), Biogen Idec (BIIB), and Regeneron (REGN) have been faltering of late. This brings me to the focus of this article, the old-school pharma/biotech dividend paying companies such as Merck (MRK), Bristol Myers (BMY), Pfizer (PFE), and Amgen (AMGN) have been increasing steadily and haven't been dropping as dramatically as their biotech counterparts. The graph and table below illustrate these gains. Since I've been looking for yield more recently I will analyze the dividend paying competitors against each other to try and see which the best of breed is.


(Click to enlarge)

Company

Ticker

YTD Gain (%)

Amgen

AMGN

9.74

Bristol Myers

BMY

41.67

Pfizer

PFE

9.57

Merck

MRK

19.03

Gilead

GILD

36.49

Biogen Idec

BIIB

46.27

Celgene

CELG

42.97

Regeneron

REGN

34.24

Valuations

Company

Ticker

P/E

Fwd P/E

PEG

EPS Growth Next 5 Yrs (%)

Amgen

AMGN

16.01

11.44

1.7

9.39

Bristol Myers

BMY

52.47

21.57

5.52

9.5

Merck

MRK

24.86

12.96

8.18

3.04

Pfizer

PFE

19.49

11.74

7.14

2.73

Taking a quick look at this valuations table I set up on Finviz.com, we see that Amgen is definitely the cheapest based on a trailing twelve month P/E ratio. But I don't really bother looking at what has happened in the past because price appreciation in the future is what I like to look at, and I utilize the 1-yr forward looking P/E and the 5-yr PEG values for that. Again we see here that Amgen is the least expensive on a 1-yr forward looking P/E ratio and a 5-yr growth estimate relative to the trailing twelve month P/E ratio (Also known as the PEG ratio). On valuation metrics the order I would buy these companies in is Amgen, Pfizer, Merck, and Bristol Myers. I see Amgen as fairly valued while the remaining trio are all too expensive.

Financials

Company

Ticker

Dividend (%)

Payout (%)

ROA (%)

ROE (%)

ROI (%)

Amgen

AMGN

1.99

25.64

9.11

23.95

10.51

Bristol Myers

BMY

3.03

156.92

4.8

9.78

6.22

Merck

MRK

3.53

86.22

5.81

11.16

7.18

Pfizer

PFE

3.49

62.47

5.66

12.71

6.65

On a financial basis Amgen beats out the rest of the companies on a Return on Assets, Equity, and Investment basis along with having a lower dividend payout ratio on an earnings basis. Amgen does lose out on the dividend itself being the lowest payer, but that wouldn't bother me because as you can see it has the most room to grow its dividend. All the return on assets, equity, and investment values are very respectable for each company but the payout ratio is what's going to help me make my decision on this one. On a financial basis I would buy the companies in order of Amgen, Pfizer, Merck and Bristol Myers.

Conclusion

With all the information I've listed here it is quite clear to me that Amgen is the best of the old-school pharma/biotech companies that pays a dividend in terms of valuation and financial metrics. I actually hold Amgen in my portfolio currently while I was contemplating purchasing some Merck and Bristol Myers recently; but I wanted to do some homework first before pulling the trigger. I'm glad I did the homework and found that Merck and Bristol Myers weren't worthy of holding in my portfolio as of this moment. The valuations alone on Merck, Pfizer and Bristol Myers make me not even think about them or any other stock in the universe at those lofty levels, I would need to see some increased earnings estimates or major price depreciation before I could jump into them on a valuation basis. In terms of a financial basis, I'd have to also see increased earnings estimates to see those dividend payout ratios drop for me to buy into them; in my dividend stocks I like to see room for that dividend to grow. After doing this analysis I'm glad to know that I already had the best stock in my portfolio after having purchased it quite some time ago.

Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade, and happy investing.

Source: Old-School Pharma/Biotech Dividend Paying Comparison