Merck and GE Cling to Gains Despite Dow's Struggles

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks are in flux after a disappointing week, as the Dow Jones Industrial Average (DJINDICES: ^DJI  ) has fallen flat in the afternoon session despite gains earlier. As of 2:30 p.m. EST, the Dow's right under the breakeven point, with its 30 member stocks split fairly evenly between risers and losers. Despite the mixed day, both Merck (NYSE: MRK  ) and General Electric (NYSE: GE  ) are managing respectable gains for investors, respectively moving higher by 0.14% and 0.61%,. Let's catch up on what you need to know.

Merck breezes past the FDA's panel
An FDA advisory committee gave the thumbs-up to one of Merck's developmental drugs yesterday, giving some welcome relief to investors. The panel unanimously voted to support approval of Merck's allergy and immunotherapy drug Grastek on both the therapy's efficacy and its safety, although the committee did raise some concerns over the drug's safety effects on children. The panel advised a further study on safety effects for younger children, along with backing the drug's safety profile on the condition that patients be afforded access to epinephrine, which is used to treat emergency allergic reactions. .

Grastek's not exactly a savior in pill form for Merck: Analysts peg peak sales of the drug only between $150 million and $350 million, so it's hardly a blockbuster candidate. Still, with the criticism Merck's research and development division has faced during the past year -- and the cost-cutting, job-slashing shake-up that followed in October -- it's a good sign for investors that the company managed to get this drug approved by the advisory panel. Grastek still has to obtain regulators' approval, but with a unanimous backing in both efficacy and safety it seems a lock to clear that final hurdle.

Over in conglomerates, GE's moving on up after the company today raised its dividend by 16%, increasing the quarterly payout from  $0.19 to $0.22. GE's one of the sturdiest dividend stocks on the Dow Jones, with a 2.8% dividend yield, even with its rather high 57% dividend payout ratio. This conglomerated giant's no alien to generating lots of cash every year, a critical advantage for any top dividend stock.

However, investors do need to keep an eye on GE's revenue, which has slid this year behind major slips at its power and water segment, its largest business by sales. Fortunately, GE's aviation unit, its second-largest by sales, has become more profitable as a percentage of sales than the power and water division and ranks neck-and-neck for profit in terms of sheer dollars and cents. Aviation's been a booming business lately, and if GE's fast-growing business keeps up its torrid pace it's set through the first nine months of 2013, when the division's profit jumped more than 14% year over year, then dividend investors can breathe easily.

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  • Report this Comment On December 13, 2013, at 3:40 PM, drmvonnostrand wrote:

    GE's dividend is now 3.3%, not 2.8% which is near the highest yield that GE stock has given.

    also, the article forgot to mention GE's strong backlog. Investors do not need to worry about near term revenue.

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