Merck (MRK) is a Dow Jones component, a Big Pharma fixture and a core holding for many dividend investors. Seeing as healthcare is one of the most recession-proof sectors out there, what’s not to like about Merck?
Unfortunately, Merck has hardly shown itself a stable long-term player. In the dot-com days, it was trading for over $80 a share, at the 2007 peak it was trading for $60 a share … and now it’s under $50 a share.
Yes, the 3.6% dividend is nice … but you need much more income than that to protect you against these long-term declines.
Merck is hardly on the brink with more than $10 billion in operating cash flow last year and over $18 billion in cash and short-term investments. But it trades for a forward P/E of about 13, so it’s at best fairly valued. Meanwhile, MRK faces long-term threats of generic competition and patent expirations that will continue to pressure earnings.