Merck (MRK) – Pharma Dividend Growth

Today’s post is about another undervalued dividend growth pharmaceutical company, which is Merck & Co (MRK). Also, it is a company that Warren Buffet just recently opened a new position in. He owns approximately $1.8 billion of $1.9 billion of the company. This is not surprising as pharma is undervalued relative to other industries, many companies have a yield of 3% or more, and the companies are cash cows with high free cash flow. Merck is no exception and it is a large-cap pharma stock with solid dividend growth. Furthermore, Merck is a Dividend Contender.

Merck - Pharma Dividend Growth

Overview of Merck

Merck & Co. Inc. (MRK) is an American pharmaceutical company. MRK was founded in 1891 by a German-born Merck employee, Theodore Weicker. Mr. Weicker received a capital of $200,000 from E. Merck to start the subsidiary of the German Company Merck, which was founded in 1668 by the Merck family. Merck & Co. was expropriated by the US government during World War I and subsequently established as an independent American company in 1917. While it operates as Merck & Co. in the United States and Canada, the original Merck based in Darmstadt holds the Merck name’s rights everywhere else. Merck is known as MSD outside of the U.S. and Canada.

Today, Merck & Co. is the world’s seventh-largest pharmaceutical Company by market capitalization and revenue. The Company develops and produces different products like medicines, vaccines, and animal healthcare products. Merck has a strong effort in development of oncology products. Merck operates in two segments: Pharmaceutical (~90% of total revenue) and Animal Health (~10% of total revenue). Major products are KETRUDA (cancer immunotherapy), JANUVIA (diabetes), GARDASIL (HPV), PROQUAD (MMR vaccine), VARIVAX (varicella vaccine), BRIDION (muscle relaxant), and PNEUMOVAX 23 (pneumococcal vaccine). Both Lynparza and Lenvima for Animal Health are also growing rapidly. Total revenue was $47,994 million in 2020.

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Source: Merck Q4 2020 Earnings Presentation

Merck Dividend History, Growth, and Yield

Merck has been growing its dividends for 11 straight years with a 5-year dividend growth rate of 6.7%. The dividend growth rate is more than double the rate of inflation. This type of growth rate will help you beat off inflation while in retirement. If you are not in retirement, this will greatly help compound and reinvest the dividends every year. The most recent dividend increase was 6.6% in November 17th of last year. This increase shows me the strength of this Company. Not only was it able to continue to pay out the dividend through the COVID-19 pandemic, while so many companies were either cutting or suspending its dividend. Merck increased it right in line with its own 5-year average growth rate. I expect the Company to continue to grow its dividend at this rate or slightly higher at 7% to 8% for the foreseeable future. 

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Disclosure: Felix is long MRK.

My name is Felix, and I am a Dividend Growth Investor who has been investing in dividend growth stocks for the past seven years. I also run a YouTube channel ...

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