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

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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

Merck (MRK - Free Report) is headquartered in Kenilworth, and is in the Medical sector. The stock has seen a price change of 11.06% since the start of the year. The pharmaceutical company is currently shelling out a dividend of $0.55 per share, with a dividend yield of 2.59%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.95% and the S&P 500's yield of 1.88%.

Looking at dividend growth, the company's current annualized dividend of $2.20 is up 10.6% from last year. In the past five-year period, Merck has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.01%. 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 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, MRK expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.74 per share, representing a year-over-year earnings growth rate of 9.22%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that MRK is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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