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Jim Trippon is an Amazon.com bestselling business and finance author, a practicing CPA, and a fee based investment advisor. His portfolio of companies includes J.M. Trippon & Company CPA, Trippon Wealth Management & Trippon Financial Publishing. Jim has dedicated his business career to... More
My company:
Trippon Financial Research, Inc.
My blog:
Global Profit$ Alert
My book:
Stay Rich Forever: Retirement Planning Secrets of Millionaires and How They Can Work For You!
  • Farming For Dividends With Big Pharma 0 comments
    Mar 10, 2011 8:57 AM | about stocks: ABT, LLY
    One sector that we have yet to discuss that holds a lot of potential for income investors is pharmaceuticals, particularly the larger players in the industry. First, we should remind investors that just because a company is a large pharmaceutical maker, that doesn't guarantee a dividend. We're talking about biotech stocks here. Obviously, biotech companies manufacture drugs, but most of them do not pay dividends. Even Amgen (Nasdaq: AMGN), the biggest, and some would argue best of breed biotech play, doesn't pay a dividend. So if you're seeking dividends in the pharmaceutical sector, stick with the more traditional names.

     

    Pfizer On The Rebound?

    Pfizer was a dividend offender back in 2009 as the company was scrambling for ways to conserve cash in the wake of its massive Wyeth acquisition, but the company did raise its dividend last year and the yield currently rests around 4%. The capital appreciation has been there, too, as Pfizer has risen 12% year-to-date, double the performance of the Dow Jones Industrial Average of which Pfizer is a member. Several of Pfizer's biggest drugs come off patent this year and while we don't make guarantees, the company may be inclined to raise the dividend again this year to keep investors appeased.

    We Love This Kind Of Consistency

    Abbott Laboratories (NYSE: ABT) is everything an income investor should be looking for in ANY sector, but it is a pharma dividend stand out. Adjusted for stock splits, Abbott's annual dividend has risen from around 25 cents in 1989 to $1.92 a share today. Abbott is another name working on a multi-decade streak of annual dividend hikes and that includes an increase in 2010.

    It's hard to argue that Abbott is one of the higher-quality names in the pharma sector and the stock is cheap at 10 times forward earnings. The dividend appears safe as Abbott's pay out ratio is 58% and the company has the balance sheet to support future dividend hikes.

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    Lilly's High Yield

    With a yield of 5.7%, Eli Lilly (NYSE: LLY) is the top yielder among major blue-chip pharma stocks and like Pfizer, it faces some issues with an important patent expiration later this year. As the chart below indicates, Lilly had been steadily growing its dividend prior to the onset of the financial crisis, but there hasn't been a dividend increase since 2009. Still, with a P/E ratio below eight and a payout ratio of 50%, this would be a pharma name for conservative, income-minded investors to consider.

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    Overall, in the absence of new marquee drugs and pipelines that leave something to be desired, dividends are once again the most compelling reason to consider big pharma. The set of challenges facing the group is nothing new, so it can be argued that the worst news is already priced into these stocks, meaning any bit of news could provide capital appreciation on top of tidy dividends.

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    For more information and archived issues, visit http://www.globalprofitsalert.com

    Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

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