Stock Analysis: Best Dividend Stocks

Fundamental Rating

We assign a fundamental rating of 7 out of 10 to MRK. MRK was compared to 198 industry peers in the Pharmaceuticals industry. MRK scores excellent points on both the profitability and health parts. This is a solid base for a good stock. MRK scores decently on growth, while it is valued quite cheap. This could make an interesting combination. Finally MRK also has an excellent dividend rating. This makes MRK very considerable for value and dividend and quality investing!

1. Profitability

1.1 Basic Checks

MRK had positive earnings in the past year.

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

MRK has a Return On Assets of 15.14%. This is amongst the best in the industry. MRK outperforms 96.46% of its industry peers.

MRK has a better Return On Equity (36.07%) than 96.46% of its industry peers.

With an excellent Return On Invested Capital value of 19.00%, MRK belongs to the best of the industry, outperforming 93.94% of the companies in the same industry.

Measured over the past 3 years, the Average Return On Invested Capital for MRK is significantly below the industry average of 41.51%.

		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

The Profit Margin of MRK (27.27%) is better than 96.46% of its industry peers.

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

MRK's Operating Margin of 33.84% is amongst the best of the industry. MRK outperforms 94.95% of its industry peers.

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

With an excellent Gross Margin value of 78.17%, MRK belongs to the best of the industry, outperforming 84.85% of the companies in the same industry.

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

		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

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

MRK has about the same amout of shares outstanding than it did 1 year ago.

The number of shares outstanding for MRK has been reduced compared to 5 years ago.

The debt/assets ratio for MRK has been reduced compared to a year ago.

2.2 Solvency

An Altman-Z score of 3.75 indicates that MRK is not in any danger for bankruptcy at the moment.

MRK's Altman-Z score of 3.75 is fine compared to the rest of the industry. MRK outperforms 79.29% of its industry peers.

MRK has a debt to FCF ratio of 2.04. This is a good value and a sign of high solvency as MRK would need 2.04 years to pay back of all of its debts.

MRK's Debt to FCF ratio of 2.04 is amongst the best of the industry. MRK outperforms 93.94% 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 66.16% 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	3.75

ROIC/WACC2.02

WACC9.42%

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 73.74% of its industry peers.

A Quick Ratio of 1.16 indicates that MRK should not have too much problems paying its short term obligations.

With a Quick ratio value of 1.16, MRK is not doing good in the industry: 73.23% of the companies in the same industry are doing better.

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.

Measured over the past years, MRK shows a quite strong growth in Earnings Per Share. The EPS has been growing by 8.04% on average per year.

The Revenue has been growing slightly by 4.10% in the past year.

The Revenue has been growing by 10.40% on average over the past years. This is quite good.

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

MRK is expected to show a small growth in Earnings Per Share. In the coming years, the EPS will grow by 6.16% yearly.

MRK is expected to show a small growth in Revenue. In the coming years, the Revenue will grow by 2.43% yearly.

EPS Next Y18.6%

EPS Next 2Y14.32%

EPS Next 3Y13.3%

EPS Next 5Y6.16%

Revenue Next Year1.76%

Revenue Next 2Y3.73%

Revenue Next 3Y4.39%

Revenue Next 5Y2.43%

3.3 Evolution

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

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

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4. Valuation

4.1 Price/Earnings Ratio

The Price/Earnings ratio is 9.49, which indicates a very decent valuation of MRK.

Based on the Price/Earnings ratio, MRK is valued cheaply inside the industry as 90.40% of the companies are valued more expensively.

The average S&P500 Price/Earnings ratio is at 24.85. MRK is valued rather cheaply when compared to this.

The Price/Forward Earnings ratio is 7.40, which indicates a rather cheap valuation of MRK.

Compared to the rest of the industry, the Price/Forward Earnings ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 90.40% of the companies listed in the same industry.

When comparing the Price/Forward Earnings ratio of MRK to the average of the S&P500 Index (20.89), we can say MRK is valued rather cheaply.

		Industry Rank	Sector Rank
PE	9.49
Fwd PE	7.4

4.2 Price Multiples

Based on the Enterprise Value to EBITDA ratio, MRK is valued cheaper than 85.86% of the companies in the same industry.

MRK's Price/Free Cash Flow ratio is rather cheap when compared to the industry. MRK is cheaper than 89.39% of the companies in the same industry.

		Industry Rank	Sector Rank
P/FCF	10.92
EV/EBITDA	8

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 13.30% in the coming years. This may justify a more expensive valuation.

PEG (NY)0.51

PEG (5Y)1.18

EPS Next 2Y14.32%

EPS Next 3Y13.3%

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5. Dividend

5.1 Amount

With a Yearly Dividend Yield of 4.17%, MRK is a good candidate for dividend investing.

Compared to an average industry Dividend Yield of 4.19, MRK pays a better dividend. On top of this MRK pays more dividend than 94.95% 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	4.17%

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.

MRK's earnings are growing slower than its dividend. This means the dividend growth is not sustainable.

DP45.54%

EPS Next 2Y14.32%

EPS Next 3Y13.3%

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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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