Should You Buy Into This Dow Dividend Dynamo?

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is taking a breather after its recent bullish charge. The blue-chip index is down 0.9% at midday, hurt by a cocktail of worrisome news on Mediterranean economies and a surprising pullback on rising oil prices. Of the 30 Dow components, 29 are in the red right now.

Amid the carnage, you'll find pharma giant Merck (NYSE: MRK  ) dropping 2%. That's the second-steepest fall on the Dow today. The macroeconomic worries were underscored by a couple of downgrades by analysts citing risks in Merck's drug development pipeline.

But pipeline risks are nothing new. Biotech and pharmaceuticals investors are used to dealing with the FDA wild card, and Merck's drug-approval uncertainty is always priced into the stock.

Buy Merck today, and you'll lock in a stellar 4.1% dividend yield. That's richer than fellow Dow members Johnson & Johnson, at 3.3%, and Pfizer, at 3.5%. In fact, Merck sports the fourth-richest yield on the Dow today, behind only the telecom cash machines and drastically undervalued semiconductor titan Intel. I have personally found Intel's yield irresistible, and Merck isn't far behind.

And that's not all. The quarterly payouts were frozen at $0.38 per share for seven years, starting in 2004. The dividend has been boosted twice in the last five quarters and now sits at $0.43 per share, per quarter.

MRK Dividend Chart

MRK Dividend data by YCharts.

This willingness to raise the payouts speaks volumes about Merck's confidence in the current product pipeline.

Long story short, Merck's dividend looks rich today but is likely to head even higher over the years. Investors with a yen for income-generation would do well to take a closer look at exploiting this opportunity.

For nearly 100 years, Merck's cutting-edge research has led to a number of medical breakthroughs. Today, however, this pharma stalwart is staring down a steep patent cliff and facing generic competition for its top-selling drug. Will Merck crumble under its own weight, or will it continue to pay dividends to investors for another century? To find out if this pharma giant has the stamina to keep its Bunsen burners alight, grab your copy of our brand-new premium research report today. Our senior biotech analyst, Brian Orelli, Ph.D., walks you through both the opportunities and the threats facing Merck, and the report comes with a full 12 months of updates. Claim your copy now by clicking here.


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  • Report this Comment On February 04, 2013, at 3:14 PM, midnightmoney wrote:

    So not only does

    "This willingness to raise the payouts speak volumes about Merck's confidence in the current product pipeline..."

    but also

    "Investors with a yen for income-generation would do well to take a closer look at exploiting this opportunity."

    yet (meanwhile) not only

    is this pharma stalwart "staring down a steep patent cliff and facing generic competition for its top-selling drug,"

    but it also

    "may crumble under its own weight..."

    Right. Yes. What? No! Of course! not?.

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