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Merck (MRK) is a Top Dividend Stock Right Now: Should You Buy?

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Merck in Focus

Headquartered in Rahway, Merck (MRK - Free Report) is a Medical stock that has seen a price change of 8.09% so far this year. The pharmaceutical company is currently shelling out a dividend of $0.77 per share, with a dividend yield of 2.61%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.01% and the S&P 500's yield of 1.59%.

In terms of dividend growth, the company's current annualized dividend of $3.08 is up 4.1% from last year. Over the last 5 years, Merck has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.36%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Merck's current payout ratio is 47%, meaning it paid out 47% of its trailing 12-month EPS as dividend.

MRK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $8.07 per share, which represents a year-over-year growth rate of 434.44%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MRK is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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