As I search for the next 2017 Dividend Machine, the challenges are significant. Many stocks seem overpriced. Many have weak revenue growth or dividends are that are too low. Although I do not usually write up all the stocks I look at preferring to post an article on those I pick, today I am comparing 3 pharmaceutical stocks.
Pharmaceutical stocks are out of favor. Their pipelines of new drugs is always precarious. Moreover the unsettled situation with health insurance further adds to uncertainty. Yet, the fundamentals are there to analyze so let's take a look at Pfizer, symbol PFE Merck, symbol MRK, and AbbVie, symbol ABBV.
2017 Dividend Machine Scorecard:
Listed in the table below are the earnings per share (EPS), dividend information, potential call options for Pfizer. You can see that PFE's earnings per share are a touch lower than the paid out dividend. In 2015 EPS were a touch less than dividends but in previous years, EPS have exceeded dividends paid out.
Merck's EPS, dividend information and covered call options are presented in the table below. In the case of Merck, EPS far exceed the dividend paid out but their revenues are not just stagnant they are in declining. Dividend growth is anemic and the call premiums do not suggest that others think MRK is going to have a significant stock price increase.
AbbVie is more interesting than either PFE or MRK as it has significant revenue growth. Revenue growth is verified by the good call options. Option buyers appear to think this stock is going up. Dividend growth is the best of the group. What stands out, however, is the tremendous amount of debt. ABBV has a D/E (debt to equity ratio) of greater than 5.
What are you buying?
I looked at one more measure: What are you buying? As an income investor you are buying the revenue stream, EPS, and dividend. Take a look at this table and you can see that for the price PFE at $32 buys you more revenue than any of the other stocks. You will get more EPS and dividend with ABBV.
Not one of these stocks makes me want to buy. I have to eliminate ABBV due to debt and MRK due to declining revenues and I am left with PFE. But more pharma companies are out there and I will compare 3 more next week. If I cannot find a suitable candidate for the 2017 portfolio in the pharma space, I will move onto another opportunity.
Disclosure: Long MRK