Looking for stocks in this crazy market that have solid balance sheets and good dividend cushions.  Should they also meet my 2016 criteria, I will add them to the portfolio.

Merck MRK

I Found 37 stocks that on first pass met my 2016 criteria but when you dig deeper few actually make the grade.

Merck just misses the grade on only one criteria and that is dividend growth. My criteria are set at a minimal annual average of 4% dividend growth. MRK comes in at 3.82% for the past 5 years. You could average it up to 4% which is why I am taking a serious look at adding MRK. See the table below.

MRK 2016 Portfolio Fundamentals



I currently hold Merck and have to decide if I should add.   Because the market is so sloppy, I would sell a call on any new position while staying long on my original holdings.  A disciplined approach is the best way to deal with a market like this.  It eliminates the emotions that go with investing.  With that in time, I just may take my time and hope that I do not miss snagging this good stock at a low.

Disclosure: Long MRK and may add.


Kohl's KSS

This stock has a lot going for it including a dividend yield of 3.59%.  Their four year dividend growth rate of 20% per year makes me take notice.  I use D/E equity ratio (debt to equity) to measure balance sheet strength and KSS sports a D/E ratio of .5831.

Revenues are the mother's milk of dividends and this year I am looking more carefully at revenues.  And that is the rub with KSS.  Last three years of revenue growth has been tepid at just over 1%.

Earnings are robust at $3.75 per share and could easily cover continued dividend increases, but eventually KSS will have to generate more revenues.  They have been able to increase earnings at a clip of 13% per year so they know how to manage their finances.

Icing on the cake of this retailer is covered call activity.  Today an April $55 call fetched around $1.80.

The table below illustrates the fundamentals that make KSS a consideration.



I will keep you posted if I add this stock.  Currently I have no position in Kohl's.

M*TheMoneyMadam

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Dividends & Income Merck and Bristol-Myers money to be made.

Options expired this weekend.   I had some stocks called away and now I have money to put to work.   I would prefer buying a Dividend Machine stock but they are not cheap.    So I am going to consider two large pharmaceuticals that are almost dividend machines

All Money in Dividend Machines

I don’t invest all my money in Dividend Machines.   When I deviate from that path, I use my four dividend machine criteria to guide me in my stock selection process.

This post outlines the process I use to select a stock for investment.  Merck, (MRK) and Bristol-Myers, (BMY) are two stocks I will evaluate.

Each one of these companies is involved in developing a medical treatment for advanced, malignant skin cancer.    The point of this post is not to determine which company has the best treatment.  The point of this post is to determine which company is the better buy using my Dividend Machine fundamental analysis.

Merck – MRK

Merck’s dividend yield is 3.22%.   That is very close to the minimal yield of 3.5% that I require for a stock to be considered a Dividend Machine.   Moreover, Merck has increased the dividend 5.2.6% per year over the last three years.   I like dividends to increase at least four percent per year.    Merck’s dividend increase history looks good.  

Merck earned $1.46 during the past four quarters and paid out $1.76 in dividends during the same time period.   This is not good.   I dug a little deeper; in 2011 and 2012 MRK earned more than it paid out in dividends.  However, in 2010 it did not. 

We don’t have a dividend machine but we might have a good income stock if it is financially solid.  My measure of financial safety is debt to equity ratio, D/E.   MRK sports a very reasonable D/E of .5036.

Merck’s fundamentals are presented in the table below.

Merck (MRK)	3/24/2014
Price when profiled	$53.78
Last 4 Qtrs Earnings	$1.46
Last 4 Qtrs Dividend	$1.76
Current Dividend Yld	3.27%
Yrly Div Inc. last 3 yrs.*	5.26%
Debt/Equity ratio	0.5036
* Dividends held steady from 2004 - 2011

Bristol-Myers – BMY

Bristol-Myers' dividend yield is only 2.77% and the dividend increases over the past five years have been only .08%.    Less yield and less yield growth might make you want to give up and buy MRK but let’s have a closer look.

BMY earns $1.56 and pays out $1.44.   This is good. Although in 2009 BMY also paid out more than it earned but that was the only year in the last 6.   Debt to equity ratio is .5503.

Bristol-Myers' fundamentals are presented in the table below.

Bristol Myers (BMY)	3/24/2014
Price when profiled	$51.04
Last 4 Qtrs Earnings	$1.56
Last 4 Qtrs Dividend	$1.44
Current Dividend Yld	2.82%
Div. Inc. last 5 years*	0.08%
Debt/Equity ratio	55.03%
* Dividends held steady for 8 quarters in 2008/2009

 

 Covered Calls

Both stocks had covered calls available on Monday.  June calls are 89 days out.  I like 89 days because you get both the call premium and the next dividend.     The tables below present the income and gain potential for each stock.   MRK is first then BMY.

Merck (MRK)	June $57.50
Cost Basis	$53.78
Strike Price	$57.50
Call Premium	$0.74
Call Yield	1.38%
Gain in $ if assigned	$4.90
Percent Capital Gain	9.11%
Quarterly  Dividend	$0.44
Percent Total Return  if assigned	11.31%

Bristol-Myers (BMY)	June $55
Cost Basis	$51.04
Strike Price	$55.00
Call Premium	$1.25
Call Yield	2.45%
Gain in $ if assigned	$5.57
Percent Capital Gain	10.91%
Quarterly  Dividend	$0.36
Percent Total Return  if assigned	14.07%

My decision is to buy both of these stocks.   I will buy more BMY than MRK.   I will sell calls on one half of my BMY position.     

I will let you know how we do.

TheMoneyMadam

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