Changing My Buy Price for Merck

Merck (MRK) is a biopharmaceutical that brings forward medicines and vaccines to prevent and treat diseases that threaten people and animals – including cancer, infectious diseases, such as HIV and Ebola, and emerging animal diseases. They have increased their dividend for 11 straight years and have a 10-year average dividend growth rate of 5.36% with its most recent raise of 6.56%. Their next dividend increase is set to be announced this November.

DGR 1YRDGR 3YRDGR 5YRDGR 10YR
6.56%10.26%6.95%5.36%

For a biopharmaceutical stock to make it into my portfolio they need a minimum dividend yield of 3.5% as they have larger risk factors from patent expiration, regulation, and litigation. With the current annual dividend of $2.60 per share that sets my current buy price at $74.28/share.

MRK has the number 2 selling drug in the world via Keytruda and that patent is not set to expire until 2028. Additionally they are applying for Keytruda patents for other applications which will more than likely stretch the patent expiration out to the early 2030’s eliminating any fear of long term patent expiration.

I do have some concerns over their debt levels as the debt to equity ratio is currently 80%. However, they just applied for emergency use of their antiviral Covid-19 medication which may generate additional cash flow in 2022 to offset my concerns and hopefully begin to retire some debt beginning around mid 2022.

Currently I am projecting MRK to increase their their annual dividend in the range of $2.76 to $2.80/share (6.15% to 7.69%). With the recent announcement of the antiviral medication I’ll go out on a limb and use the upper end of my estimate of $2.80/share and if you divide that by my expected dividend yield of 3.5% then my new buy price is $80/share. Based on Monday’s close of $83.15/share it is 4% above my buy price.

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