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 gets an excellent profitability rating and is at the same time showing great financial health properties. 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

In the past year MRK was profitable.

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

Each year in the past 5 years MRK has been profitable.

In the past 5 years MRK always reported a positive cash flow from operatings.

1.2 Ratios

MRK's Return On Assets of 14.62% is amongst the best of the industry. MRK outperforms 96.46% of its industry peers.

MRK has a better Return On Equity (36.96%) than 96.46% of its industry peers.

MRK has a Return On Invested Capital of 19.77%. This is amongst the best in the industry. MRK outperforms 93.94% of its industry peers.

MRK had an Average Return On Invested Capital over the past 3 years of 20.13%. This is significantly below the industry average of 41.67%.

		Industry Rank	Sector Rank
ROA	14.62%
ROE	36.96%
ROIC	19.77%

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

MRK's Profit Margin of 26.68% is amongst the best of the industry. MRK outperforms 95.96% of its industry peers.

MRK's Profit Margin has been stable in the last couple of years.

The Operating Margin of MRK (34.59%) is better than 95.45% of its industry peers.

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

MRK has a Gross Margin of 78.19%. This is amongst the best in the industry. MRK outperforms 84.85% of its industry peers.

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

		Industry Rank	Sector Rank
OM	34.59%
PM (TTM)	26.68%
GM	78.19%

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

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

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

MRK has less shares outstanding than it did 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 3.81 indicates that MRK is not in any danger for bankruptcy at the moment.

The Altman-Z score of MRK (3.81) is better than 78.28% of its industry peers.

MRK has a debt to FCF ratio of 2.05. This is a good value and a sign of high solvency as MRK would need 2.05 years to pay back of all of its debts.

Looking at the Debt to FCF ratio, with a value of 2.05, MRK belongs to the top of the industry, outperforming 93.43% of the companies in the same industry.

MRK has a Debt/Equity ratio of 0.74. This is a neutral value indicating MRK is somewhat dependend on debt financing.

MRK has a Debt to Equity ratio of 0.74. This is in the lower half of the industry: MRK underperforms 67.17% of its industry peers.

Even though the debt/equity ratio score it not favorable for MRK, it has very limited outstanding debt, so we won't put too much weight on the DE evaluation.

		Industry Rank	Sector Rank
Debt/Equity	0.74
Debt/FCF	2.05
Altman-Z	3.81

ROIC/WACC2.14

WACC9.25%

2.3 Liquidity

A Current Ratio of 1.36 indicates that MRK should not have too much problems paying its short term obligations.

MRK has a Current ratio of 1.36. This is in the lower half of the industry: MRK underperforms 76.77% of its industry peers.

MRK has a Quick Ratio of 1.15. This is a normal value and indicates that MRK is financially healthy and should not expect problems in meeting its short term obligations.

The Quick ratio of MRK (1.15) is worse than 72.73% 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	1.36
Quick Ratio	1.15

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WACC

Debt/Equity

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Altman-Z score

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3. Growth

3.1 Past

The Earnings Per Share has grown by an impressive 258.99% over the past year.

The Earnings Per Share has been growing by 8.04% on average over the past years. This is quite good.

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

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.

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 Year1.56%

Revenue Next 2Y3.93%

Revenue Next 3Y4.56%

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.

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

MRK is valuated reasonably with a Price/Earnings ratio of 10.68.

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

MRK is valuated cheaply when we compare the Price/Earnings ratio to 28.22, which is the current average of the S&P500 Index.

Based on the Price/Forward Earnings ratio of 8.33, the valuation of MRK can be described as reasonable.

Based on the Price/Forward Earnings ratio, MRK is valued cheaper than 91.41% 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 20.86.

		Industry Rank	Sector Rank
PE	10.68
Fwd PE	8.33

4.2 Price Multiples

Based on the Enterprise Value to EBITDA ratio, MRK is valued cheaply inside the industry as 85.86% of the companies are valued more expensively.

Compared to the rest of the industry, the Price/Free Cash Flow ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 88.89% of the companies listed in the same industry.

		Industry Rank	Sector Rank
P/FCF	11.57
EV/EBITDA	8.7

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.

The excellent profitability rating of MRK may justify a higher PE ratio.

A more expensive valuation may be justified as MRK's earnings are expected to grow with 13.30% in the coming years.

PEG (NY)0.57

PEG (5Y)1.33

EPS Next 2Y14.32%

EPS Next 3Y13.3%

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5. Dividend

5.1 Amount

With a Yearly Dividend Yield of 3.89%, MRK has a reasonable but not impressive dividend return.

MRK's Dividend Yield is rather good when compared to the industry average which is at 4.20. MRK pays more dividend than 94.95% of the companies in the same industry.

Compared to an average S&P500 Dividend Yield of 2.44, MRK pays a better dividend.

		Industry Rank	Sector Rank
Dividend Yield	3.89%

5.2 History

The dividend of MRK is nicely growing with an annual growth rate of 6.90%!

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

MRK has not decreased its dividend for at least 10 years, so it has a reliable track record of non decreasing dividend.

Dividend Growth(5Y)6.9%

Div Incr Years13

Div Non Decr Years33

5.3 Sustainability

45.80% 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.

DP45.8%

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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