Stock Analysis: Best Dividend Stocks

Fundamental Rating

Taking everything into account, MRK scores 7 out of 10 in our fundamental rating. MRK was compared to 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 scores decently on growth, while it is valued quite cheap. This could make an interesting combination. 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

MRK had positive earnings in the past year.

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

MRK had positive earnings in each of the past 5 years.

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

1.2 Ratios

The Return On Assets of MRK (14.62%) is better than 96.97% of its industry peers.

MRK has a Return On Equity of 36.96%. This is amongst the best in the industry. MRK outperforms 96.97% of its industry peers.

MRK's Return On Invested Capital of 19.77% is amongst the best of the industry. MRK outperforms 94.44% of its industry peers.

Measured over the past 3 years, the Average Return On Invested Capital for MRK is significantly below the industry average of 40.40%.

		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 has a better Profit Margin (26.68%) 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.

Looking at the Operating Margin, with a value of 34.59%, MRK belongs to the top of the industry, outperforming 95.96% of the companies in the same industry.

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

Looking at the Gross Margin, with a value of 78.19%, MRK belongs to the top of the industry, outperforming 84.34% of the companies in the same industry.

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

MRK has an Altman-Z score of 3.70. 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 3.70, MRK is in the better half of the industry, outperforming 79.29% of the companies in the same industry.

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.

With an excellent Debt to FCF ratio value of 2.05, MRK belongs to the best 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.

The Debt to Equity ratio of MRK (0.74) is worse than 67.17% 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	0.74
Debt/FCF	2.05
Altman-Z	3.7

ROIC/WACC2.13

WACC9.27%

2.3 Liquidity

MRK has a Current Ratio of 1.36. This is a normal value and indicates that MRK is financially healthy and should not expect problems in meeting its short term obligations.

MRK's Current ratio of 1.36 is on the low side compared to the rest of the industry. MRK is outperformed by 76.26% of its industry peers.

A Quick Ratio of 1.15 indicates that MRK should not have too much problems paying its short term obligations.

The Quick ratio of MRK (1.15) is worse than 72.22% 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 409.33% over the past year.

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 6.74%.

MRK shows quite a strong growth in Revenue. Measured over the last years, the Revenue has been growing by 10.40% yearly.

EPS 1Y (TTM)409.33%

EPS 3Y6.87%

EPS 5Y8.04%

EPS Q2Q%5633.33%

Revenue 1Y (TTM)6.74%

Revenue growth 3Y9.63%

Revenue growth 5Y10.4%

Sales Q2Q%6.79%

3.2 Future

The Earnings Per Share is expected to grow by 6.16% on average over the next years.

Based on estimates for the next years, MRK will show a small growth in Revenue. The Revenue will grow by 2.43% on average per year.

EPS Next Y18.6%

EPS Next 2Y14.32%

EPS Next 3Y13.3%

EPS Next 5Y6.16%

Revenue Next Year1.66%

Revenue Next 2Y3.96%

Revenue Next 3Y4.55%

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

A Price/Earnings ratio of 10.21 indicates a reasonable valuation of MRK.

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 28.29, which is the current average of the S&P500 Index.

With a Price/Forward Earnings ratio of 8.61, the valuation of MRK can be described as very reasonable.

Compared to the rest of the industry, the Price/Forward Earnings ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 89.90% of the companies listed 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 21.08.

		Industry Rank	Sector Rank
PE	10.21
Fwd PE	8.61

4.2 Price Multiples

Based on the Enterprise Value to EBITDA ratio, MRK is valued cheaply inside the industry as 86.36% of the companies are valued more expensively.

Based on the Price/Free Cash Flow ratio, MRK is valued cheaply inside the industry as 89.90% of the companies are valued more expensively.

		Industry Rank	Sector Rank
P/FCF	10.85
EV/EBITDA	8.21

4.3 Compensation for Growth

MRK's 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.

MRK's earnings are expected to grow with 13.30% in the coming years. This may justify a more expensive valuation.

PEG (NY)0.55

PEG (5Y)1.27

EPS Next 2Y14.32%

EPS Next 3Y13.3%

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5. Dividend

5.1 Amount

With a Yearly Dividend Yield of 4.15%, MRK is a good candidate for dividend investing.

The stock price of MRK dropped by -20.34% in the last 3 months. With lower prices the dividend yield is higher, but it may be a sign investors do not trust the long term dividend.

MRK's Dividend Yield is rather good when compared to the industry average which is at 4.50. MRK pays more dividend than 94.44% of the companies in the same industry.

MRK's Dividend Yield is rather good when compared to the S&P500 average which is at 2.52.

		Industry Rank	Sector Rank
Dividend Yield	4.15%

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

MRK pays out 45.80% of its income as dividend. 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.

DP45.8%

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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