Stock Analysis: Best Dividend Stocks

Fundamental Rating

MRK gets a fundamental rating of 7 out of 10. The analysis compared the fundamentals against 197 industry peers in the Pharmaceuticals industry. MRK gets an excellent profitability rating and is at the same time showing great financial health properties. MRK may be a bit undervalued, certainly considering the very reasonable score on growth Finally MRK also has an excellent dividend rating. These ratings would make MRK suitable for value and dividend and quality investing!

1. Profitability

1.1 Basic Checks

In the past year MRK was profitable.

In the past year MRK had a positive cash flow from operations.

In the past 5 years MRK has always been profitable.

Each year in the past 5 years MRK had a positive operating cash flow.

1.2 Ratios

The Return On Assets of MRK (15.14%) is better than 96.45% of its industry peers.

The Return On Equity of MRK (36.07%) is better than 96.45% of its industry peers.

MRK's Return On Invested Capital of 19.00% is amongst the best of the industry. MRK outperforms 94.42% of its industry peers.

The Average Return On Invested Capital over the past 3 years for MRK is significantly below the industry average of 42.34%.

		Industry Rank	Sector Rank
ROA	15.14%
ROE	36.07%
ROIC	19%

ROA(3y)9.42%

ROA(5y)9.66%

ROE(3y)23.17%

ROE(5y)26.32%

ROIC(3y)20.13%

ROIC(5y)17.77%

1.3 Margins

Looking at the Profit Margin, with a value of 27.27%, MRK belongs to the top of the industry, outperforming 96.45% of the companies in the same industry.

In the last couple of years the Profit Margin of MRK has remained more or less at the same level.

With an excellent Operating Margin value of 33.84%, MRK belongs to the best of the industry, outperforming 94.92% of the companies in the same industry.

MRK's Operating Margin has improved in the last couple of years.

MRK has a Gross Margin of 78.17%. This is amongst the best in the industry. MRK outperforms 85.28% of its industry peers.

In the last couple of years the Gross Margin of MRK has grown nicely.

		Industry Rank	Sector Rank
OM	33.84%
PM (TTM)	27.27%
GM	78.17%

OM growth 3Y4.43%

OM growth 5Y7.18%

PM growth 3Y-0.15%

PM growth 5Y1.18%

GM growth 3Y3.55%

GM growth 5Y2.42%

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ROA

ROE

ROIC

Operating and Profit Margin

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2. Health

2.1 Basic Checks

With a Return on Invested Capital (ROIC) well above the Cost of Capital (WACC), MRK is creating value.

Compared to 1 year ago, MRK has about the same amount of shares outstanding.

MRK has less shares outstanding than it did 5 years ago.

Compared to 1 year ago, MRK has an improved debt to assets ratio.

2.2 Solvency

MRK has an Altman-Z score of 3.84. This indicates that MRK is financially healthy and has little risk of bankruptcy at the moment.

Looking at the Altman-Z score, with a value of 3.84, MRK is in the better half of the industry, outperforming 78.68% of the companies in the same industry.

The Debt to FCF ratio of MRK is 2.04, which is a good value as it means it would take MRK, 2.04 years of fcf income to pay off all of its debts.

MRK's Debt to FCF ratio of 2.04 is amongst the best of the industry. MRK outperforms 93.91% of its industry peers.

MRK has a Debt/Equity ratio of 0.69. This is a neutral value indicating MRK is somewhat dependend on debt financing.

MRK has a Debt to Equity ratio of 0.69. This is in the lower half of the industry: MRK underperforms 65.48% of its industry peers.

Although MRK does not score too well on debt/equity it has very limited outstanding debt, which is well covered by the FCF. We will not put too much weight on the debt/equity number as it may be because of low equity, which could be a consequence of a share buyback program for instance. This needs to be investigated.

		Industry Rank	Sector Rank
Debt/Equity	0.69
Debt/FCF	2.04
Altman-Z	3.84

ROIC/WACC2

WACC9.51%

2.3 Liquidity

A Current Ratio of 1.41 indicates that MRK should not have too much problems paying its short term obligations.

MRK's Current ratio of 1.41 is on the low side compared to the rest of the industry. MRK is outperformed by 70.05% of its industry peers.

MRK has a Quick Ratio of 1.16. This is a normal value and indicates that MRK is financially healthy and should not expect problems in meeting its short term obligations.

MRK has a Quick ratio of 1.16. This is in the lower half of the industry: MRK underperforms 69.54% of its industry peers.

MRK does not score too well on the current and quick ratio evaluation. However, as it has excellent solvency and profitability, these ratios do not necessarly indicate liquidity issues and need to be evaluated against the specifics of the business.

		Industry Rank	Sector Rank
Current Ratio	1.41
Quick Ratio	1.16

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WACC

Debt/Equity

How to determine the health of a company

Altman-Z score

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3. Growth

3.1 Past

MRK shows a strong growth in Earnings Per Share. In the last year, the EPS has been growing by 258.99%, which is quite impressive.

MRK shows quite a strong growth in Earnings Per Share. Measured over the last years, the EPS has been growing by 8.04% yearly.

MRK shows a small growth in Revenue. In the last year, the Revenue has grown by 4.10%.

Measured over the past years, MRK shows a quite strong growth in Revenue. The Revenue has been growing by 10.40% on average per year.

EPS 1Y (TTM)258.99%

EPS 3Y6.87%

EPS 5Y8.04%

EPS Q2Q%7.25%

Revenue 1Y (TTM)4.1%

Revenue growth 3Y9.63%

Revenue growth 5Y10.4%

Sales Q2Q%-1.56%

3.2 Future

Based on estimates for the next years, MRK will show a small growth in Earnings Per Share. The EPS will grow by 6.16% on average per year.

The Revenue is expected to grow by 2.43% on average over the next years.

EPS Next Y17.73%

EPS Next 2Y13.58%

EPS Next 3Y12.74%

EPS Next 5Y6.16%

Revenue Next Year1.68%

Revenue Next 2Y3.64%

Revenue Next 3Y4.27%

Revenue Next 5Y2.43%

3.3 Evolution

When comparing the EPS growth rate of the last years to the growth rate of the upcoming years, we see that the growth is decreasing.

The Revenue growth rate is decreasing: in the next years the growth will be less than in the last years.

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4. Valuation

4.1 Price/Earnings Ratio

A Price/Earnings ratio of 9.96 indicates a reasonable valuation of MRK.

MRK's Price/Earnings ratio is rather cheap when compared to the industry. MRK is cheaper than 90.36% of the companies in the same industry.

MRK is valuated cheaply when we compare the Price/Earnings ratio to 26.35, which is the current average of the S&P500 Index.

The Price/Forward Earnings ratio is 7.87, which indicates a rather cheap valuation of MRK.

MRK's Price/Forward Earnings ratio is rather cheap when compared to the industry. MRK is cheaper than 88.32% of the companies in the same industry.

MRK's Price/Forward Earnings ratio indicates a rather cheap valuation when compared to the S&P500 average which is at 22.20.

		Industry Rank	Sector Rank
PE	9.96
Fwd PE	7.87

4.2 Price Multiples

Based on the Enterprise Value to EBITDA ratio, MRK is valued cheaper than 86.29% of the companies in the same industry.

89.85% of the companies in the same industry are more expensive than MRK, based on the Price/Free Cash Flow ratio.

		Industry Rank	Sector Rank
P/FCF	11.43
EV/EBITDA	8.38

4.3 Compensation for Growth

The low PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates a rather cheap valuation of the company.

MRK has an outstanding profitability rating, which may justify a higher PE ratio.

MRK's earnings are expected to grow with 12.74% in the coming years. This may justify a more expensive valuation.

PEG (NY)0.56

PEG (5Y)1.24

EPS Next 2Y13.58%

EPS Next 3Y12.74%

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5. Dividend

5.1 Amount

MRK has a Yearly Dividend Yield of 4.21%, which is a nice return.

Compared to an average industry Dividend Yield of 4.20, MRK pays a better dividend. On top of this MRK pays more dividend than 95.43% of the companies listed in the same industry.

Compared to an average S&P500 Dividend Yield of 2.40, MRK pays a better dividend.

		Industry Rank	Sector Rank
Dividend Yield	4.21%

5.2 History

On average, the dividend of MRK grows each year by 6.90%, which is quite nice.

MRK has paid a dividend for at least 10 years, which is a reliable track record.

MRK has not decreased their dividend for at least 10 years, which is a reliable track record.

Dividend Growth(5Y)6.9%

Div Incr Years13

Div Non Decr Years33

5.3 Sustainability

45.54% of the earnings are spent on dividend by MRK. This is a bit on the high side, but may be sustainable.

The dividend of MRK is growing, but the earnings are growing slower. This means the dividend growth is not sustainable.

DP45.54%

EPS Next 2Y13.58%

EPS Next 3Y12.74%

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New York Stock Exchange, Inc. / Health Care / Pharmaceuticals

1. Profitability

1.1 Basic Checks

1.2 Ratios

1.3 Margins

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2. Health

2.1 Basic Checks

2.2 Solvency

2.3 Liquidity

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3. Growth

3.1 Past

3.2 Future

3.3 Evolution

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4. Valuation

4.1 Price/Earnings Ratio

4.2 Price Multiples

4.3 Compensation for Growth

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5. Dividend

5.1 Amount

5.2 History

5.3 Sustainability

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