Who doesn't love dividends? (Well, if you don't, I wonder why you clicked on a dividend article!) Two strong companies Coca-Cola (KO) and Merck (MRK) are going ex-dividend this week. This article presents the dividends basics of these stocks, their recent performance and the catalysts they have in the near term. Since Coke's dividend and general prowess is well known, this article focuses a bit more on Merck.
- Ex-Div Date: Coke goes ex-dividend on June 13th for 51 cents a share.
- Dividend Growth: Coke increased its dividends for the 50th consecutive year to 51 cents a share for the March 2012 payout and that will be the same payout presumably for the next 3 quarters as well.
- Recent Performance: Coke's stock has performed much better than the overall market since the pullback started in April this year, proving once again that people rush for the safety in stocks like Coke at the slightest hint of panic.
- Stock Specific Catalysts: A strong catalyst for the stock in the short term is the upcoming stock split. While the fundamentals do not change after a stock split, more often than not, stocks go up post-split.
- General Catalysts: Coke has a big exposure to Europe and any hint of positive news from Europe will act as a catalyst for Coke's stock. It was reported that european sales were weak in the most recent quarter and understandably so.
- Watch Out For: Again, if Europe gets into more mess, Coke will certainly get pushed lower along with the rest of the market, providing lower entry points. However, it is hard to think of any company specific weakness after one understands the fact that Coke's growth rate is more likely to be linear than an upward trajectory.
- Verdict: It would undermine Coke if one were to say "now is a good time to buy this stock". It is such a strong company that is loyal towards investors that any time is a good time to buy it. While the stock might not be very high yielder, its dividend and capital growth prospects will most likely make it a good holding for anyone with a long term outlook.
- Ex-Div Date: Merck also goes ex-dividend on June 13th for 42 cents a share.
- Dividend Growth: Dividend growth investors might not like MRK much because, well there has been no dividend growth for 7 years, till the recent 10% increase.
- In fact, based on the screening performed for this article, only Abbott Laboratories (ABT) resembles a strong dividend growing pharma stock.
- It will be interesting to see if MRK maintains its current dividend of 42 cents a share for many more years to come or if the new dividend increase is a sign of things to come.
- However, one still cannot deny that Merck is a good dividend stock, if not a dividend growth stock. The current yield is a very healthy 4.4%.
- A strong point in favor of MRK is the fact that it did not cut its dividends even during the 2009 crisis when other pharma stocks like Pfizer (PFR) had to cut the dividend by half.
- Recent Performance: MRK has held up really well in the downturn since April. It has stuck to its $37 to $38 trading range.
- Catalysts: MRK's integration with Schering Plough took place towards the end of 2009. Most of these mergers bear more positive results as time goes on while the management works on eliminating excess. Merck's animal health has been growing sales faster than the consumer care division and this trend could continue to act as a bit of a growth catalyst in the near future.
- Watch Out For: All the pharma companies have to deal with patent related issues. MRK for example loses its patent on Singular in August. While this should already be priced into the stock, one can never be sure of the actual impact on the revenue.
- Verdict: Buy MRK right here if you are looking at steady and consistent 4% to 5% dividends. However, it might not be your best pick if you are looking for growing dividends. Treat it more like a bank that pays you a steady interest for holding your money.