Thursday, February 16, 2017

Three more Phmaceuticals for Income Investors to Consider

Last week I discussed three big pharma stocks:  Pfizer, symbol PFE, AbbVie symbol ABBV, and Merck, symbol MRK. I will continue to review stocks in this space to see if I can find my next 2017 Dividend Machine.

  • Competitive and growing dividends 
  • EPS (earnings per share) and revenue trends that are positive
  • Manageable debt
  • Call options that suggest future stock price growth

This is the second installment of this process and includes Lilly, symbol LLY, Bristol-Meyers symbol BMY, and Johnson & Johnson, symbol JNJ.


Readers of my work know that I use a few fairly easy to find criteria to screen for income stocks and it is no different this time.  The table below lists the criteria I am using to evaluate the big pharma stocks.  Please note that I am not including international/global pharma stocks like Novartis, Sanofi or Teva in this post.

It is rare to find a stock that meets or exceeds all these criteria.  I am looking for a stock that meets most of these criteria.  One criteria, debt, is very important to me.  It is hard to buy a stock like ABBV with a D/E ratio greater than 5.  On the other hand, if a stock pays less than the 2.75% dividend but has robust calls that could make up the income gap, I would consider that stock for inclusion in my portfolio.

Lilly, symbol LLY:

Lilly has been around a long time.  They made their reputation on insulin.  Lilly has been a big supporter of its hometown, Indianapolis, IN.  As displayed in the table below, LLY's diviend yield is a touch short at 2.61% and their call option premium is weak.  Dividend growth is o.k. but revenue growth is negative.  Debt is adequate.  Since I believe that revenue drives dividends,  I will not add LLY to the 2017 Dividend Machine portfolio although I personally have owned it a long time. In the recent past, I was able to sell some decent covered calls to boost my income.

Chart is from Market Watch

Bristol-Meyers, BMY:

Bristol-Meyers' fundamentals are presented below.  BMY meets all the criteria except for dividend growth.  They do have dividend growth but it is less than 3%.  This is not a deal breaker.  With the robust calls and good revenue growth, I find BMY to be a quality stock that I will consider for 2017.

Chart from Market Watch


Johnson & Johnson, symbol JNJ:

JNJ has been a phenomenal company.  It is more than just a pharmaceutical; it is a global goliath.  Is it a good Dividend Machine?  JNJ has very good dividend growth but flat revenue growth.  With the trade challenges going on in the new administration, JNJ could face some headwinds.  We don't use that as a criteria; I stick with my basic screen.  With that in mind. JNJ would be a good stock to consider for the long run.  It is not going out of business.  Debt is very low and very manageable.  JNJ does not have a lot sizzle here, but it is a good company.

Chart from Market Watch

What does your investment dollar buy?

Using the data presented above, I find BMY the most compelling of the group.   In my first installment of this analysis, PFE was o.k. but not compelling.  However, for your investment dollar you buy the most revenue when you buy PFE (see previous post.)   Below you can see an analysis of what each one dollar of investing buys as it relates to revenues, earnings, and dividends.  One more factor to help you decide if you want to buy any of these stocks.

Next week I will complete this process and will write about Abbott Laboratories, symbol ABT, and Amgen, symbol AMGN.

M* MoneyMadam

Disclosure:  Long JNJ, Long LLY with calls