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I am a IT Professional with a bachelors degree in Computer Science. I am not some multimillionaire (although I hope to be one day) I am an average everyday working person who decided to step out on his own and I want to encourage others to do the same. My investment profile closely resembles... More
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  • 5 Dividend Paying Pharmaceutical Companies To Profit From An Aging Population

    Introduction:

    As an income investor I am always looking for new and emerging markets and trends within developed countries that could potentially shift and or increase demand levels for certain market segments. I believe that the pharmaceutical industry is set to benefit from shifting market segments over the coming years. This shift may even signal a long term bull market for the entire pharmaceutical segment. Now that markets have started to rebound and the economy has leveled off many older workers are once again focusing on retirement. The retirement aging workers has the potential to cause significant waves in the market over the next 10 years as they shift from working into retirement. We are starting to see the emergence of this market as we speak and it would be wise for investors to get in on the ground floor of this economic shift.

    Aging Population:

    The great recession caused many people to postpone retirement and prolong working because of the deflation of their assets and holdings. Now that the market has rebounded from lows experienced during that tumultuous time many baby boomers are starting to focus on this finish line we like to call retirement. We hear all the time about the aging American population. As you can see in the below graphic based on data taken from the 2000 US Census the largest portion of the population by far is the segment aged 35-44. Since this data was based on 2000 census data if we adjust the age range based on the 13 years since this data was collected, that would shift this portion of our population to the 48-57 age range. This puts the oldest portion of this segment of the American population a mere 8 years from retirement. Some may even be considering early retirement as a possibility. This generation of Americans will drive shifts in the markets over the coming years as they start to retire. One of these segments will obviously be the pharmaceutical industry to which these people will look for medicine and treatments for whatever ailments they may encounter during their golden years.

    (click to enlarge)

    This segment of the economy will see increased demand for its product offerings over the next 10 years. I believe that investors should look for a bull market to emerge for the pharmaceutical segment of the economy within the next couple years with no apparent slowing for quite some time. I believe there is significant money to be made based on this future market demand.

    Johnson & Johnson (JNJ)

    JNJ is more than just a pharmaceutical company. JNJ has a large consumer goods producing segment focusing on personal hygiene as well. JNJ is positioned to profit from any bull market that may emerge for pharmaceutical companies, but should the market fail to emerge with the strength that I believe it will JNJ's consumer goods segment shelters this stocks from complete exposure to the pharmaceutical market.

     20082009201020112012
    Revenue63.75B61.9B61.64B65.04B67.28B
    Net Income12.95B12.27B13.33B9.697B10.85B
    EPS$4.62$4.45$4.85$3.54$3.94

    JNJ missed the entire rebound rally after the great recession hit. It was not until early this year that it began to make any moves higher. It rallied with the broader market and appears to be slightly overbought at current levels. If earnings data does not significantly improve over the next year I would wait for a pullback to open a new position or increase holdings in this stock.

    (click to enlarge)

    JNJ has nice exposure to the pharmaceutical and medical device market that it should benefit from any bull trends that may emerge, but its diversity also affords investors a level of sheltered protection should this market fail to emerge.

    Merck & Co (MRK)

    MRK acquired Schering-Plough in 2009 and although its saw its revenue increase significantly after the acquisition net income has been inversely affected as a result of the acquisition. Net income has significantly fallen since 2009.

     20082009201020112012
    Revenue23.85B27.43B45.91B48.13B47.35B
    Net Income7.81B12.9B861M6.26B6.17B
    EPS$3.66$5.67$0.28$2.04$2.03

    MRK like JNJ missed the post great recession rebound that saw the broader market add more than 100% in value. MRK has started to rebound recently starting in mid 2012, but it has much farther to run. MRK is currently overbought based upon year-end earnings projections.

    (click to enlarge)

    Although MRK's acquisition in 2009 nearly doubled revenue it has been a dragging factor as to why MRK has not seen significant share price growth over the last 3 years. If the demand growth in pharmaceuticals from the aging American population does manifest itself and MRK can figure out how to truly profit from its 2009 acquisition, MRK looks well positioned to profit from this market shift.

    Pfizer Inc (PFE)

    PFE saw significant revenue increases after its acquisition of Wyeth in 2009. Although revenue increased by almost 35% after this acquisition, PFE has really struggled to make acquisition a profitable one as far as net income is concerned. As you can see in the two years following the acquisition net income is flat across those years.

     20082009201020112012
    Revenue48.3B50.01B67.06B67.43B58.99B
    Net Income8.03B8.62B8.18B8.7B9.49B
    EPS$1.19$1.23$1.03$1.11$1.32

    PFE like most pharmaceutical companies struggled to rebound after the great recession. It has made a recent charge though starting in early 2012 and has been on quite the rolls since. It may be overbought slightly but with its latest correction is in a buying range.

    (click to enlarge)

    Although PFE's acquisition has struggled to contribute towards the company's bottom line increasing market share is never a bad strategy. If the bull market for pharmaceutical emerges like I expect it too PFE is well positioned to profit.

    Bristol-Myers Squibb Co (BMY)

    BMY has been a rather interesting study over the last few years. Its fundamentals are constantly in a state of flux but yet the stock price keeps climbing higher. As you can see revenue and net income has been relatively flat over the last 5 years.

     20082009201020112012
    Revenue20.6B18.81B19.48B21.24B17.62B
    Net Income3.16B3.22B3.09B3.7B1.96B
    EPS$1.65$1.72$1.80$2.18$1.17

    Even though revenues have been relatively flat the share price for BMY has increase almost 135% over the last 5 years. This has placed BMY into the sell range. It you own BMY I would recommend taking a portion of your profits off of the table because this trend cannot continue.

    (click to enlarge)

    Although BMY will profit from an increase in pharmaceutical demand should it arise based on current levels and fundamentals it appears to be significantly overbought. This will mute any future gains arising from the aging of America's workforce. I expect BMY to lag the broader pharmaceutical industry over the coming years should current trends hold.

    Eli Lilly & Co (LLY)

    LLY is an interesting play on this potential increasing demand in this industry. LLY is a pharmaceutical company that operates in two segments, human based and animal based divisions. How many retired people do you see with pets? It has long been proven that pets improve the mood of their owners and also are a source of entertainment. LLY in my view is for those people who want to double down on any potential bull market.

     20082009201020112012
    Revenue20.38B21.84B23.08B24.29B22.6B
    Net Income(2.07B)4.33B5.07B4.35B4.09B
    EPS($1.89)$3.94$4.58$3.90$3.67

    If you believe as I do that the aging American workforce will increase the demand for pharmaceutical products, than you may also believe that companion animal pharmaceuticals may be set for an increase in demand as well. This is based on the assumption that a portion of the retirement age population will have and own pets for which they will also purchase medication as they age. LLY is a strong buy at current valuations.

    (click to enlarge)

    LLY has seen its stock price hold steady for the most part since the great recession ended. Since the middle of 2012 it has seen nice growth in its share price. I believe that LLY is positioned better than most pharmaceuticals to profit from an increase in demand for its products, not only from humans but also their companion animals as well.

    Summary:

    America's aging population will cause a significant market demand shifts over the coming years. As the largest segment of our population retire and downsize I expect certain markets like housing will see prices depressed due to the flood of houses being made available by retiring couples. However, the pharmaceutical industry is one that I feel, if positioned well, will profit greatly from this aging group. Please comment in the section below and let me know if and how you are planning to profit from America's aging population.

    Disclosure: I am long JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jun 11 10:16 AM | Link | Comment!
  • 4 Stocks Generating Solid Monthly Income

    Introduction:

    Everyone knows that over the last 4 years the Federal Reserve has taken it upon themselves to try to fix the economy of the United States as best as they can. This has meant a period of time with significantly depressed interest rates which has really hurt income centric investors forcing them to use some of their capital to meet certain expenses. This has further eroded their income since they have had to reduce the amount of principal they have invested. For this reason I would like to highlight 4 alternative investments that when held even in small amounts can ease the burden for income investors. These investments would have even increased the amount of an investors total principal over the last 4 years as well.

    Investments:

    For this discussion I will assume that a $10,000 investment was made 4 years ago. I will calculate the total income paid back to investors as well as the new total principal of the below investments.

    Realty Income Corp (O)

    Realty Income Corp is a real estate investment trust company that engages in long term net lease agreements. They are required by law to pay out at least 90% of investment derived income.

    Four years ago during the week of April, 6th 2009, O was trading at $22.02 a share and was yielding 7.7% on its dividend payments. If an income investors would have bought $10,000 worth of O at that point in time they would have bought 454 shares of O which would have been paying them a monthly sum of $64.46. Now let us fast forward to today. This same investment, assuming no money was added and that all dividend payments had been taken in cash, would be currently paying $82.17 monthly. That is a 27% increase over the original monthly payments. The total dividend payments of the last 4 years would have amounted to $3,207. This investment would also currently be worth $20,929 based on today's current price of $46.10. The principal has more than doubled over the last 4 years.

    (click to enlarge)

    PowerShares Preferred Stock ETF (PGX)

    PGX is an ETF that invests in the preferred shares of various corporations. These preferred shares although they do not offer large price growth do take precedence in dividend payments above that of common stock. Most of the time the dividend payment rate is higher than of its company stock as well and is locked in at a certain rate for a period of time.

    Four years ago during the week of April, 6th 2009, PGX was trading at $10.37 a share and was yielding 13.5% on its dividend payments. If an income investors would have bought $10,000 worth of PGX at that point in time they would have bought 964 shares of PGX which would have been paying them a monthly sum of $112.78. Now let us fast forward to today. This same investment, assuming no money was added and that all dividend payments had been taken in cash, would be currently paying $75.19 monthly. That is a 33% decrease when compared to the original monthly payments. This is a result of the long term depressed interest rate market which has allowed companies to continue issuing preferred shares at lower and lower interest rates. Although we have seen a monthly decline in income, the total dividend payments of the last 4 years would have amounted to $4,979. This investment would also currently be worth $14,353 based on today's current price of $14.89. The principal has increase significantly over the last 4 years more than compensating for the lost yield of the original investment.

    (click to enlarge)

    iShares iBoxx High Yield Corporate Bond (HYG)

    HYG is an ETF containing high yield bonds from various companies. More and more people have been flocking to high yield debt over the last 4 years which has been driving down the interest rates of this type of debt.

    Four years ago during the week of April, 6th 2009, HYG was trading at $72.30 a share and was yielding 13.3% on its dividend payments. If an income investors would have bought $10,000 worth of HYG at that point in time they would have bought 138 shares of HYG which would have been paying them a monthly sum of $111.22. Now let us fast forward to today. This same investment, assuming no money was added and that all dividend payments had been taken in cash, would be currently paying $67.34 monthly. That is a 39% decrease when compared to the original monthly payments. This is a result of the long term depressed interest rate market which has allowed companies to continue issuing high yield bonds at lower and lower interest rates. Although we have seen a monthly decline in income, the total dividend payments of the last 4 years would have amounted to $3,958. This investment would also currently be worth $12,970 based on today's current price of $93.99. The principal has increase significantly over the last 4 years compensating for the decreased yield of the original investment.

    (click to enlarge)

    Main Street Capital (MAIN)

    MAIN is a business development company. They provide financing operations to small and middle market companies. These companies are often too large for community banks to loan to but not large enough for larger banks to care about. They are required by law to pay out at least 90% of investment derived income.

    Four years ago during the week of April, 6th 2009, MAIN was trading at $10.74 a share and was yielding 13.9% on its dividend payments. If an income investors would have bought $10,000 worth of MAIN at that point in time they would have bought 931 shares of O which would have been paying them a monthly sum of $116.37. Now let us fast forward to today. This same investment, assuming no money was added and that all dividend payments had been taken in cash, would be currently paying $144.30 monthly. That is a 24% increase over the original monthly payments. The total dividend payments of the last 4 years would have amounted to $6,260. This investment would also currently be worth $28,898 based on today's current price of $31.04. The principal has almost tripled over the last 4 years.

    (click to enlarge)

    Portfolio Summary:

    If all four of these investments were bought on the same day 4 years ago they would have paid $404.83 monthly. These same investments today would be paying $369.00. This is a total monthly decrease in payments of 8.8%. Although the monthly payments have decrease slightly over time the total dividend payments for the last 4 years amount to $18,404. This averages out to $4,601 dollars annually from dividend payments alone. If compared to the total original investment of $40,000 across all 4 investments this would have an annualized dividend yield of 11.5%. This is quite impressive for income seekers when you consider the current interest rates of both fixed income government bonds and bank certificates of deposit (COD) accounts. The portfolio has not only yielded 11.5% annually in dividend payments but is now worth $77,150. This is 92% increase in portfolio value. This is an average annual gain of 23% for these investments which amounts to $9,287 dollars a year in gains. In total this portfolio would have yielded 13888 annually over the last 4 years an average annual return of 34%.

    Summary:

    As you can see although our monthly income has fallen by a small amount the 4 year returns for these investments are very impressive especially for income seeking investors. Although this portfolio would have been successful over the last 4 years I do believe that PGX and HYG may be hitting their upward limit in share price. I would wait for a correction before potentially buying into these investments. Please comment in the section below and let me know what other alternatives to traditional fixed income you have been investing in.

    Disclosure: I am long HYG, MAIN, O, PGX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Apr 08 4:36 PM | Link | Comment!
  • Utilize Trailing Stops (For Dividend Growth Investors)

    Introduction:

    If you have read any of my previous articles you are probably very aware that I am a dividend growth investor. Dividend growth investors have a long range outlook on many of the stocks that they purchase and hold. Even DGI investors can recognize overbought markets and should consider ways to profit from those types of markets even and use them to enhance our long term positions. To achieve this goal I have started to utilize trailing stops for certain holdings that have increased significantly in value. Trailing stops allow me to lock in profits in my long term positions with the ability to buy back in at lower cost basis levels after market corrections. I would like to discuss the specifics of how I utilize these trailing stops and hopefully influence other DGI investors to consider doing the same.

    Why:

    The goal of any dividend growth investor is to increase long term dividend income. If you can achieve that by selling a stock at a certain price and then buying the same stock back at a lower price, why would you not? Even though most dividend centric portfolios have a much lower beta than most portfolios, they are not immune to market swings and corrections, especially in the case of overbought markets. Some of the stocks held in these portfolios more often than not become overbought with broader market increases.

    When:

    I have four rules when utilizing trailing stops which I would like to talk a little about. I will then give a couple examples of current trailing stops that are active in my dividend portfolio; a portfolio that I have discussed in more detail in this previous article.

    1) Never place a trailing stop on a stock that has been held less than a year.

    This is especially important if you are in the lower two tax brackets. Long term capital gains rates allow you portfolio to make you a profit without adding to your tax basis for the year. If a stock is held for less than one year it will be taxed at your current income bracket level. If a stock is held for longer than one year they will be taxed at 0% for the 10% and 15% tax brackets and will be taxed at 15% for all income brackets above the 15% bracket.

    2) Never place a trailing stop on any stock that has not grown by at least 20%

    One of the benefits of owning dividend paying stocks is to watch the dividend payments compound over time. This is one of the reasons that dividend investors are less likely to sell underwater stocks than other investors. The compounded dividend payments help the stock grow faster than a non dividend paying stock. For this reason we don't want to place trailing stops on any stock that has made us any less than 20% of our original purchase price because the stocks upward momentum from compounding has not accumulated over our investment timeframe.

    3) Never place a trailing stop on any stock that does not have an average daily share volume of at least 1 million shares.

    This is one lesson that I had to learn the hard way that I feel everyone should be aware of. I placed trailing stops on a few stocks that had lower daily volume and were subject to more drastic swings stocks with larger daily volume. Smaller daily volume stocks are more easily manipulated by larger entities with large transactions and can force you out of a position before it has run its course and peeked. For this reason we only utilize trailing stops on stocks that have larger daily volume share averages.

    4) Never place a trailing stop close enough that the trade would execute on a normal days trading window.

    Standard market corrections are generally in the 5-10% window with larger corrections possible for severely overbought markets. For this reason I utilize a 5% trailing stop. This means that my sale of a stock will only execute once the stock falls 5% from its highest trading value. Example: I bought a stock at $50 it climbs to $60 at which point I place a trailing stop order out against that stock that would execute around the $57 mark. It continues to climb to $70 dollars a share meaning my new trigger price has increased with the increase in price of the stock and now sits around $66.50. This trailing stop cushions any pain I may feel from a significant market correction.

    My Trailing Stops:

    Based on my rules above I currently have placed trailing stops on 4 out of 20 stocks in my portfolio and I am getting close to opening one more. My minimum profit is based upon the current trigger prices which may increase as stock prices increase.

    StockSharesTrigger PriceCost BasisMinimum Profit
    The Hershey Company (HSY)22.5416$82.09$1,500$343.49
    Johnson & Johnson (JNJ)23.0427$78.59$1,500$303.98
    Wal-Mart Stores Inc. (WMT)23.8481$72.76$1,500$228.24
    Waste Management, Inc. (WM)46.8771$37.05$1,500$229.85

    I am currently up more than 18% on PepsiCo Inc (PEP) and I will place a trailing stop on that stock as well as soon at it hits the 20% mark in my portfolio. By utilizing trailing stops on the investments above I guarantee myself at least an average 18.4% profit above my original investment.

    Summary:

    Utilizing trailing stops can be a nice way for DGI investors to cushion downside profit loss while at the same time allowing their stocks to run as far as they possibly can before hitting the sell button. This also assures that you increase your cash position during periods in which the market is trending downward. If the market falls far enough you may even consider repurchasing the same investments due to over correction in stock prices. Please comment below and let me know what other trading tools you may use to cushion downside losses.

    Disclosure: I am long HSY, JNJ, PEP, WM, WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Apr 08 1:20 PM | Link | 9 Comments
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