It’s undeniable that pharmaceutical stocks are under pressure amid patent expirations. It’s also clear that drugmakers need to spend big bucks on replacing the product pipeline, either via massive acquisitions of smaller biotech players or by spending billions of dollars every year on their own home-grown ideas.
But despite this, income investors shouldn’t overlook the power Big Pharma still has to deliver huge dividends and big-time buybacks that boost shareholder value.
Merck (MRK) dishes out 43 cents per quarter, good for a 3.7% dividend yield and about $5 billion in total dividends paid each year. And furthermore, MRK announced a $15 billion stock buyback plan this year, with about $7.5 billion of that coming by May 2014.
Sure, the revenue picture has been foggy ever since Merck’s blockbuster asthma drug Singulair went off-patent, and it’s unclear how its pipeline will play out in the years ahead.
But if MRK can deliver this kind of cash at the same time it’s spending more than $8 billion on research, that’s a good sign that this pharmaceutical stock is serious about keeping cash in the hands of shareholders.