Markets Present 1 Growth, 4 Income Opportunities

 |  Includes: BWLD, GSK, LLY, MRK, PFE
by: Mark Riddix

As I wrote in a previous post, Buffalo Wild Wings (NASDAQ:BWLD) would be an attractive stock to buy in the mid 30’s. Buffalo Wild Wings is entering buy territory with shares of the chicken wing chain now selling at $35.87. Shares could potentially drop to the low 30’s because small caps get hit the hardest during market corrections. If so then it would be a great opportunity to buy a solid small cap franchise with a great balance sheet and good future growth prospects for 15 times next year’s earnings.

An Income Play

The pharmaceutical industry is home to some of the best income generators in the market. Dividends help improve investment returns especially during choppy markets like the one we are in now. Pfizer (NYSE:PFE) has entered buy territory with shares trading at just $15. Pfizer is a buy purely for the dividend yield alone. The stock is currently paying a 72 cent dividend which equates to a 4.7% yield. The dividend will likely increase in the future as the current dividend payout is just 31% of next year’s earnings. This is relatively low compared to other pharmaceutical companies which have dividend payouts over 40%. Eli Lilly (NYSE:LLY) has a payout of 44% and GlaxoSmithKline (NYSE:GSK) 48%. Merck (NYSE:MRK) is currently paying out 39% and there are rumblings of a dividend increase. Pfizer is no longer the growth stock that it once was. As a mature cash cow, Pfizer will likely have to increase its dividend again to satisfy investors.

Although Pfizer trades at just 6.6 times 2011’s earnings, growth is expected to be anemic with the 5 year growth estimate barely above 2.5%. This is purely an income play. Investors looking for greater capital appreciation with dividend income should take a look at drug stocks Merck, Eli Lilly, and GlaxoSmithKline. These stocks are currently yielding 4.8%, 5.9%, and 5.6%. They do, however, trade at slightly higher multiples than Pfizer.