Merck & Co., Inc (NYSE:MRK) Cautious about its Dividends

440

By Ross Schwartz on November 4, 2014 Company

There is a threat looming over Merck & Co., Inc (NYSE:MRK) regarding the dividends it pays to its investors due to its Non-GAAP expenses. Buyers interested in long term usually prefer that the company’s dividends are stable and rational rather than turbulent. Merck is currently paying out 92 percent as dividends Merck & Co., Inc (NYSE:MRK) quarterly payout is 0.44 dollars and its EPS is lagging since the past 4 quarters.

Merck & Co., Inc (NYSE:MRK) has put itself in a tight spot, leaving itself almost no room for any mishap or a risk move to boost its dividend position. On a closer inspection, Merck & Co., Inc (NYSE:MRK) payout ratio stands between 92 percent ratio of GAAP earnings and robust 50 percent from the non-GAAP earnings. The costs hanging upon Merck & Co., Inc (NYSE:MRK) aren’t long term to hurt Merck & Co., Inc (NYSE:MRK) profit but if taken lightly, they have the potential to cause pestilence.

Merck & Co., Inc (NYSE:MRK) GAAP profits are waning because of its near-term costs while the costs needed for acquisitions, reconstructing etc are almost finished which were initiated to cut costs. Meaning the non-GAAP earnings are better, in fact good. That doesn’t really mean that the dividend is sustainable, but it’s an indication that it’s relatively safe. However, the investors shouldn’t expect anything from Merck & Co., Inc (NYSE:MRK), such as a raise in the dividend yet.

Merck & Co., Inc (NYSE:MRK) invested on a cancer fighting drug that has been approved by the food and Drug administration which has gained a good response in the preliminary experiments as well. By the look of things, Merck & Co., Inc (NYSE:MRK) dividend looks safe. The numbers are solid, and the drugs are getting a good response, but since we all know that pharmaceutical companies fare relatively slower than other businesses.

Merck & Co., Inc (NYSE:MRK) isn’t going raise its payout for the next couple of years surely; except of course if the company gains a formidable financial stature, only then it can give back something more to the investors. Investors are wise to know that a dividend stock is more robust than the non dividend. A potential buyer having a pension portfolio, is attracted to a company with a healthy dividends stream.

In case of Merck & Co., Inc (NYSE:MRK) the dividends are lying between robust and unsafe. That might not be enough to attract new buyers as this turbulance doesnt suit a pension portfolio. On the flip side, Merck & Co., Inc (NYSE:MRK) is successfully making drugs which are getting good reviews in the market. The pharmaceutical sector can be quite tricky when it comes to making money; you have to make a drug, get it tested for 6-8 months and wait for approval.

It’s a long process but Merck & Co., Inc (NYSE:MRK) should accelerate its drug operations to come up with new medicines frequently, perhaps that will give Merck & Co., Inc (NYSE:MRK) the strength to be big and formidable enough to payout in large numbers. For now, Merck & Co., Inc’s (NYSE:MRK) cancer drug called Keytruda is their flagship drug currently, as it is expected to make major sales because of its effectiveness in fighting last stage cancer.