Over the past year, Merck's (MRK 0.40%) shares have climbed by 46%. That seems a bit surprising. Last year, the company's financial results were relatively weak as it faced declining revenue for one of its growth franchises, HPV vaccines Gardasil and Gardasil 9. The healthcare leader could also face increased competition for its most important product, cancer drug Keytruda.
Despite all that, Merck remains a top stock to buy and hold for a while, especially for income seekers. Here's more.
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The Keytruda franchise can still perform well
Keytruda is the world's best-selling cancer drug, and is approved across many different indications. But it will lose patent exclusivity by 2028. Meanwhile, several companies are developing products that could challenge Keytruda. That includes Summit Therapeutics' ivonescimab, a medicine that beat Keytruda in a head-to-head clinical trial in patients with non-small cell lung cancer (NSCLC) and a PD-L1 protein overexpression.
Even with all that, Keytruda's empire, although weakened, should remain strong until the next decade. Merck has received approval for a subcutaneous formulation of the medicine, which has significant advantages. It is faster and easier to administer without sacrificing efficacy, making it much more convenient than the original version.
There will likely be "Keytruda killers" approved in the next few years, but this well-established franchise should benefit from a large number of indications and proven outcomes. Those will help it maintain solid market share in its most important niches, including NSCLC.
NYSE: MRK
Key Data Points
Beyond Keytruda
Merck has also diversified its lineup. Over the past few years, it has received approval for products such as Winrevair, a medicine for pulmonary arterial hypertension, and Capvaxive, a pneumonia vaccine. Both are generating solid sales (Winrevair's annual run rate is over $1 billion).
The pipeline has been expanded as well and now boasts promising candidates, including a product that could revolutionize the influenza vaccine market. This is what Merck has been doing for a long time: developing new products to overcome competition and patent cliffs while maintaining consistent revenue and earnings, even with occasional sales drops due to various issues. The healthcare giant looks well positioned to continue down that road.
The company's dividend looks secure. Merck's payouts have increased by 93.8% over the past decade, and its payout ratio of 45.1% suggests ample room for further dividend hikes. The stock currently offers a forward yield of 2.8%, which is well above the S&P 500's average of 1.2%.
So, even with the fast-approaching Keytruda patent cliff and other challenges -- including those related to its HPV vaccine business -- Merck remains an excellent buy-and-hold dividend stock.
