Thanks for your comment. There are several different ways to value a company, I just chose to use a dividend discount model. It's possible that another approach could yield a different valuation. For example, Apple only recently decided to issue a dividend, but I would not have valued the company at $0 before, just because they had no dividend.
But I agree with you - the dividend does not seem to be a good reason to own this stock.
Good point. Although considering the amount of litigation that big pharma companies end up going through, I think it's safe to assume those expenses won't completely go away. But your point is true - it may be significantly less, freeing up capital for other uses.
Thanks Robert. I agree that merger integration will probably always impact earnings with big pharma, especially as they continue to try to plug the hole left from the patent cliff they are experiencing.
Choosing a discount rate is an often debated subject, so I will acknowledge that investors can obviously adjust their own models to fit their assumptions. Two additional points that go into my thinking:
1) This analysis includes a perpetuity growth rate, so I wanted to match that with a long-term discount rate. Ten years seems too short. 2) Investors probably would have had your same objection in 1999 or going into 2000, and asked where I had been the past 5 years (or even 15 years), except they would argue my rate was too low!
But I do get your point. Like I said, discount rates can differ, that's why I think it's important to include assumptions.
Microsoft: Increasing Dividend With Some Margin Of Safety [View article]
Agreed. Having a few different revenue streams helps to protect the downside risk to a degree, but MSFT certainly needs to keep growing free cash flow to be able to continue returning increasing amounts of capital to its shareholders.
Microsoft: Increasing Dividend With Some Margin Of Safety [View article]
Dividend growth over the whole time period was something like 30% compounded annually. It was about 12.5% from '07-11, which includes one of the worst recessions and negative FCF growth at one point. I could see other investors thinking it's more optimistic, but I don't think they're unreasonable.
Microsoft: Increasing Dividend With Some Margin Of Safety [View article]
Thanks Michael. You make a great point in terms of thinking about which valuation method makes the most sense, given a company's point in its "lifecycle". I think there are a couple of tech stocks that are in the same situation, which is probably why more value-oriented fund managers are picking them up.
I also agree that it is sometimes difficult for investors to shift their perspective on a stock, especially if they've held it or followed it for a long time.
Johnson & Johnson: A Dividend Growth Investor's Dream [View article]
@Paul Leibowitz
I think you raise an excellent point about relying on historical growth and trends in predicting the future dividend growth and returns for any company. I really use historical data, especially in well established, blue-chip type stocks, to just get a sense of what's going on with a company. I look at this type of analysis as a screener or starting point. If I find something I like, I go deeper.
KV Pharmaceutical: Surging Revenue and New Product Launch May Signal Turnaround [View article]
michaeld35 - good question! I have not seen anything regarding an EU approval, and the the management team seems really focused on successfully launching in the U.S., as well as getting FDA approval back for other drugs. The European Medicines Agency (EMA) does provide a similar orphan drug status so it is possible they could pursue this at some point, assuming no one beat them to it.
KV Pharmaceutical: Surging Revenue and New Product Launch May Signal Turnaround [View article]
joinerz - thanks. I think there is significant upside if the Makena launch goes reasonably well. The next 1-2 quarters will give a clearer sense of how much product they're selling, so I'd keep my eye on that.
P&G Provides Dividend Investors Some Safety From The Storm [View article]
P&G Provides Dividend Investors Some Safety From The Storm [View article]
Merck: Dividend Growth Investors Beware [View article]
But I agree with you - the dividend does not seem to be a good reason to own this stock.
Merck: Dividend Growth Investors Beware [View article]
Merck: Dividend Growth Investors Beware [View article]
Choosing a discount rate is an often debated subject, so I will acknowledge that investors can obviously adjust their own models to fit their assumptions. Two additional points that go into my thinking:
1) This analysis includes a perpetuity growth rate, so I wanted to match that with a long-term discount rate. Ten years seems too short.
2) Investors probably would have had your same objection in 1999 or going into 2000, and asked where I had been the past 5 years (or even 15 years), except they would argue my rate was too low!
But I do get your point. Like I said, discount rates can differ, that's why I think it's important to include assumptions.
Happy investing!
Microsoft: Increasing Dividend With Some Margin Of Safety [View article]
Microsoft: Increasing Dividend With Some Margin Of Safety [View article]
Microsoft: Increasing Dividend With Some Margin Of Safety [View article]
I also agree that it is sometimes difficult for investors to shift their perspective on a stock, especially if they've held it or followed it for a long time.
Johnson & Johnson: A Dividend Growth Investor's Dream [View article]
I think you raise an excellent point about relying on historical growth and trends in predicting the future dividend growth and returns for any company. I really use historical data, especially in well established, blue-chip type stocks, to just get a sense of what's going on with a company. I look at this type of analysis as a screener or starting point. If I find something I like, I go deeper.
Happy investing!
Johnson & Johnson: A Dividend Growth Investor's Dream [View article]
Johnson & Johnson: A Dividend Growth Investor's Dream [View article]
Johnson & Johnson: A Dividend Growth Investor's Dream [View article]
Thanks for the comment! My article for Pfizer just got posted:
http://bit.ly/LS8ZIC
Protalix BioTherapeutics: Near-Term Catalysts With Big Upside Potential [View article]
KV Pharmaceutical: Surging Revenue and New Product Launch May Signal Turnaround [View article]
KV Pharmaceutical: Surging Revenue and New Product Launch May Signal Turnaround [View article]