Merck 1 Of 4 Interesting Dividend Plays To Consider

May.22.12 | About: Merck & (MRK)

In the learning to fish series, we provide investors with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of investing. It is important that readers take the time to read and understand the selection process involved in coming up with these picks. This information can be obtained here - "Our suggested guidelines when searching for new investment ideas." We will list one stock that meets all or most of the suggested criteria but we will also list plays that do not fulfill the stated criteria as examples of what investors should generally shy away from, unless they are willing to take on a bit of extra risk.

Reasons to consider Merck & Co Inc (NYSE:MRK):

  • Sales increased from $27 billion in 2009 to $48 billion in 2011
  • Annual EPS before NRI increased from $3.20 in 2007 to $3.77 in 2011
  • Cash flow per share increased from $3.28 in 2009 to $6.28 in 2011
  • A strong quarterly earnings growth rate of 66%
  • Strong institutional support; percentage held by institutions is 74.8%
  • A very strong levered free cash flow of $11.07 billion
  • A decent yield of 4.4%
  • A low payout ratio of 44%
  • A good Five year ROE average of 27%
  • A current ratio of 2.07
  • A decent quick ratio of 1.66
  • A good interest coverage ratio of 11.65
  • A very good long-term debt to equity ratio of 0.28
  • A strong free cash flow yield of 9.6%
  • A decent three year total return of 65%
  • It reported first quarter earnings of 99 cents per share, which were above Zack's consensus estimates. Revenue increased by 1.3% to $11.7 billion. The arbitration agreement with Johnson & Johnson negatively affected earnings by 2%. Its animal health segment recorded sales of $821 million, an increase of 8%. Consumer care sales rose to $554 million, an increase of 7% driven mainly by Coppertone and Dr. Scholl's foot care line.

A potential negative factor

It reaffirmed its outlook for 2012. Management expects earnings per share in the $3.75-$3.85 ranges. Management expects revenues to be negatively affected by 2-3% due to loss of the exclusivity of Singulair with the fourth quarter being the weakest.

Click to enlarge

Click to enlarge

Company: Merck & Co Inc

Growth

  1. Net Income ($mil) 12/2011 = 6272
  2. Net Income ($mil) 12/2010 = 861
  3. Net Income ($mil) 12/2009 = 12899
  1. EBITDA ($mil) 12/2011 = 14761
  2. EBITDA ($mil) 12/2010 = 9034
  3. EBITDA ($mil) 12/2009 = 17866
  4. Cash Flow ($/share) 12/2011 = 6.28
  5. Cash Flow ($/share) 12/2010 = 5.87
  6. Cash Flow ($/share) 12/2009 = 3.28
  1. Sales ($mil) 12/2011 = 48047
  2. Sales ($mil) 12/2010 = 45987
  3. Sales ($mil) 12/2009 = 27428
  1. Annual EPS before NRI 12/2007 = 3.2
  2. Annual EPS before NRI 12/2008 = 3.42
  3. Annual EPS before NRI 12/2009 = 3.25
  4. Annual EPS before NRI 12/2010 = 3.42
  5. Annual EPS before NRI 12/2011 = 3.77

Click to enlarge

Dividend history

  1. Dividend Yield = 4.4
  2. Dividend Yield 5 Year Average 12/2011 = 4.29
  3. Forward Yield = 4.42
  4. Dividend 5 year Growth 12/2011 = 1.09

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.44
  2. Payout Ratio 5 Year Average 12/2011 = 0.46

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 3.4
  2. 5 Year History EPS Growth 12/2011 = 4.84
  3. ROE 5 Year Average 12/2011 = 27.01
  4. Return on Investment 12/2011 = 16.27
  5. Current Ratio 12/2011 = 2.07
  6. Current Ratio 5 Year Average = 1.86
  7. Quick Ratio = 1.66
  8. Cash Ratio = 1.15
  9. Interest Coverage Quarterly = 11.5

Company: Emerson Electric Company (NYSE:EMR)

Basic Key ratios

  1. Relative Strength 52 weeks = 52
  2. Cash Flow 5 -year Average = 3.64

Growth

  1. Net Income ($mil) 12/2011 = 2480
  2. Net Income ($mil) 12/2010 = 2164
  3. Net Income ($mil) 12/2009 = 1724
  1. EBITDA ($mil) 12/2011 = 4721
  2. EBITDA ($mil) 12/2010 = 3956
  3. EBITDA ($mil) 12/2009 = 3397
  1. Cash Flow ($/share) 12/2011 = 4.46
  2. Cash Flow ($/share) 12/2010 = 3.8
  3. Cash Flow ($/share) 12/2009 = 3.26
  1. Sales ($mil) 12/2011 = 24222
  2. Sales ($mil) 12/2010 = 21039
  3. Sales ($mil) 12/2009 = 20915
  1. Annual EPS before NRI 12/2007 = 2.66
  2. Annual EPS before NRI 12/2008 = 3.11
  3. Annual EPS before NRI 12/2009 = 2.27
  4. Annual EPS before NRI 12/2010 = 2.69
  5. Annual EPS before NRI 12/2011 = 3.24

Click to enlarge

Dividend history

  1. Dividend Yield = 3.5
  2. Dividend Yield 5 Year Average 12/2011 = 2.88
  3. Dividend 5 year Growth 12/2011 = 6.88
  4. Payout Ratio 09/2011 = 0.51

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 11.16
  2. EPS Growth Quarterly(1)/Q(-3) = -101.37
  3. 5 Year History EPS Growth 12/2011 = 2.01
  4. ROE 5 Year Average 12/2011 = 23.37
  5. Current Ratio 12/2011 = 1.38
  6. Quick Ratio = 1.12
  7. Cash Ratio = 0.42
  8. Interest Coverage Quarterly = 15.03

Company: Leucadia Natl (NYSE:LUK)

Basic Key ratios

  1. Percentage Held by Insiders = 19.4
  2. Relative Strength 52 weeks = 26
  3. Cash Flow 5-year Average = 1.06

Growth

  1. Net Income ($mil) 12/2011 = 25
  2. Net Income ($mil) 12/2010 = 1939
  3. Net Income ($mil) 12/2009 = 550
  4. Net Income Reported Quarterly ($mil) = 491
  1. EBITDA ($mil) 12/2011 = 888
  2. EBITDA ($mil) 12/2010 = 599
  3. EBITDA ($mil) 12/2009 = -26
  1. Cash Flow ($/share) 12/2011 = 0.46
  2. Cash Flow ($/share) 12/2010 = 8.19
  3. Cash Flow ($/share) 12/2009 = 2.51
  1. Sales ($mil) 12/2011 = 1571
  2. Sales ($mil) 12/2010 = 1320
  3. Sales ($mil) 12/2009 = 1119
  1. Annual EPS before NRI 12/2007 = -0.23
  2. Annual EPS before NRI 12/2008 = -3.94
  3. Annual EPS before NRI 12/2009 = 2.14
  4. Annual EPS before NRI 12/2010 = 7.66
  5. Annual EPS before NRI 12/2011 = 0.07

Click to enlarge

Dividend history

  1. Dividend Yield = 1.2
  2. Dividend Yield 5 Year Average 12/2011 = 0.44
  3. Annual Dividend 12/2011 = 0.25

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.13
  2. Payout Ratio 5 Year Average 12/2011 = 0.59

Performance

  1. 5 Year History EPS Growth 12/2011 = 66
  2. ROE 5 Year Average 12/2011 = 6.5
  3. Return on Investment 12/2011 = 6.17
  4. Current Ratio 12/2011 = 1.4
  5. Current Ratio 5 Year Average = 1.73
  6. Quick Ratio = 1.03
  7. Cash Ratio = 0.6
  8. Interest Coverage Quarterly = 13.42

Company: Siemens Ag-Adr (SI)

Basic Key ratios

  1. Relative Strength 52 weeks = 31
  2. Cash Flow 5-year Average = 11.42

Growth

  1. Net Income ($mil) 12/2011 = 8824
  2. Net Income ($mil) 12/2010 = 5521
  3. Net Income ($mil) 12/2009 = 3383
  4. Net Income Reported Quarterly ($mil) = 1296
  1. EBITDA ($mil) 12/2011 = 18980
  2. EBITDA ($mil) 12/2010 = 16042
  3. EBITDA ($mil) 12/2009 = 9233
  1. Cash Flow ($/share) 12/2011 = 15.13
  2. Cash Flow ($/share) 12/2010 = 15.18
  3. Cash Flow ($/share) 12/2009 = 8.42
  1. Sales ($mil) 12/2011 = 102627
  2. Sales ($mil) 12/2010 = 103125
  3. Sales ($mil) 12/2009 = 103862
  1. Annual EPS before NRI 12/2007 = 5.46
  2. Annual EPS before NRI 12/2008 = 6.49
  3. Annual EPS before NRI 12/2009 = 3.49
  4. Annual EPS before NRI 12/2010 = 8.67
  5. Annual EPS before NRI 12/2011 = 10.82

Click to enlarge

Dividend history

  1. Dividend Yield = 3.4
  2. Dividend Yield 5 Year Average 12/2011 = 1.91
  3. Dividend 5 year Growth 12/2011 = 12.7

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.39
  2. Payout Ratio 5 Year Average 12/2011 = 0.29

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 26.15
  2. 5 Year History EPS Growth 12/2011 = 14.32
  3. ROE 5 Year Average 12/2011 = 15.63
  4. Return on Investment 12/2011 = 9.97
  5. Current Ratio 12/2011 = 1.21
  6. Current Ratio 5 Year Average = 1.17
  7. Quick Ratio = 0.87
  8. Cash Ratio = 0.52
  9. Interest Coverage Quarterly = 4.46

Conclusion

The markets are extremely oversold and it looks like Monday's rally might be the beginning of the relief rally we have been expecting. However, we still believe there is more downside to this market. We will need to witness one or two more selling climaxes, followed by 1-2 days where the market closes in the red on low volume before a bottom is in place. Long-term investors can use strong pullbacks to slowly start deploying money into long-term investments. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors looking for other investment ideas might find these articles to be of interest: General Electric: An Option Strategy That Could Potentially triple your yield and Is Caterpillar A Great Long-Term Play?

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies let the buyer beware.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS and Price vs. industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Data for Ycharts sourced from Ycharts.com.