NYSE:MRK) is about to go ex-dividend in just four days. If you purchase the stock on or after the 14th of September, you won’t be eligible to receive this dividend, when it is paid on the 7th of October.” data-reactid=”28″>Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Merck & Co., Inc. (NYSE:MRK) is about to go ex-dividend in just four days. If you purchase the stock on or after the 14th of September, you won’t be eligible to receive this dividend, when it is paid on the 7th of October.
Merck’s upcoming dividend is US$0.61 a share, following on from the last 12 months, when the company distributed a total of US$2.44 per share to shareholders. Based on the last year’s worth of payments, Merck has a trailing yield of 2.9% on the current stock price of $83.33. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Merck has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Merck ” data-reactid=”30″> View our latest analysis for Merck
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Merck paid out 56% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”37″>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re not enthused to see that Merck’s earnings per share have remained effectively flat over the past five years. It’s better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company’s prospects for future growth.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Merck has lifted its dividend by approximately 4.8% a year on average.
To Sum It Up
From a dividend perspective, should investors buy or avoid Merck? Merck has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don’t appear unsustainable. All things considered, we are not particularly enthused about Merck from a dividend perspective.
2 warning signs for Merck that you should be aware of before investing in their shares.” data-reactid=”59″>With that being said, if dividends aren’t your biggest concern with Merck, you should know about the other risks facing this business. To help with this, we’ve discovered 2 warning signs for Merck that you should be aware of before investing in their shares.
checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.” data-reactid=”60″>If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”61″>This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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