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Bristol Myers: A Good Pill To Swallow?
I can't think of a single instance where I've ever invested in a company just because of the dividend it pays. However, I do tend to look a bit more fondly on organizations that do pay dividends. And why not? A quarterly dividend, if it's kept up, can really enhance an investor's total return.
IN PICTURES: Digging Out Of Debt In 8 Steps
That said, I recently ran a screen looking for larger name companies with market capitalizations of more than $1 billion that have a current dividend yield of 5% or more. This may be a good starting point for further investigation.
Here are some of the companies that came up.
Hiding In Plain Sight
Although many followers of the pharmaceutical industry may be focused on the pending combination of Merck (NYSE:MRK) and Schering Plough (NYSE:SGP), New Jersey-based Bristol Myers (NYSE:BMY): is a company that deserves a much closer look from the investment community. It has several things working to its advantage.
For one, the company has had a pretty good record of exceeding Wall Street expectations this past year. This has put it on a number of retail and institutional radar screens. The stock's solid performance since the March time frame also stands out. If it can manage to break through its 52-week high (which it's not too far away from) it has the potential to garner a fair amount of press and by extension, perhaps the interest of momentum investors.
Acquisition Powerhouse
Then there is Medarex, which the company is expected to acquire. According to its second-quarter earnings release, which was made public on July 23. "The planned acquisition of Medarex is expected to decrease the company's earnings per share by $0.02 to $0.03 in 2009 and $0.07 to $0.09 in 2010."
That same release painted a pretty picture of the potential benefits as well. "The acquisition positions Bristol-Myers Squibb for long-term leadership in biologics; gives the company full rights to a promising phase III compound, ipilimumab; significantly expands the company's oncology and immunology pipeline and provides access to novel antibody discovery technology." A deal could raise a fair amount of interest among the analyst community.
It's also important to note that the company is expected to deliver solid earnings. Bristol is expected to earn $2.01 a share this year and $2.19 a share in 2010, which implies an expected growth of almost 9%. Incidentally, the company trades at 10 times the 2009 estimate, which I find attractive as well.
Finally, there is the dividend. The current yield is about 5.7%, which sure seems like icing on the cake.
The Bottom Line
Dividends aren't the only factor to consider when analyzing or investing in a company. But a dividend yield can certainly be a nice sweetener. Regarding Bristol Myers, I like the fact that it trades at a low multiple of expected earnings, it has done a good job beating expectations, and the possibility that it could break through its 52-week high. The dividend is like the cherry on top of this ice cream sundae. (Read Dividend Facts You May Not Know to learn about other complicated issues you may not be aware of with dividends.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: Digging Out Of Debt In 8 Steps
That said, I recently ran a screen looking for larger name companies with market capitalizations of more than $1 billion that have a current dividend yield of 5% or more. This may be a good starting point for further investigation.
Here are some of the companies that came up.
|
Company |
Current Dividend Yield% |
|
AT&T INC (NYSE:T) |
6.4 |
|
BP PLC (NYSE:BP) |
6.7 |
|
Bristol Myers Squibb (NYSE:BMY) |
5.7 |
|
Foot Locker (NYSE:FL) |
5.2 |
|
Pitney Bowes (NYSE:PBI) |
6.6 |
|
Screen run on August 12, 2009. |
|
Hiding In Plain Sight
Although many followers of the pharmaceutical industry may be focused on the pending combination of Merck (NYSE:MRK) and Schering Plough (NYSE:SGP), New Jersey-based Bristol Myers (NYSE:BMY): is a company that deserves a much closer look from the investment community. It has several things working to its advantage.
For one, the company has had a pretty good record of exceeding Wall Street expectations this past year. This has put it on a number of retail and institutional radar screens. The stock's solid performance since the March time frame also stands out. If it can manage to break through its 52-week high (which it's not too far away from) it has the potential to garner a fair amount of press and by extension, perhaps the interest of momentum investors.
Then there is Medarex, which the company is expected to acquire. According to its second-quarter earnings release, which was made public on July 23. "The planned acquisition of Medarex is expected to decrease the company's earnings per share by $0.02 to $0.03 in 2009 and $0.07 to $0.09 in 2010."
That same release painted a pretty picture of the potential benefits as well. "The acquisition positions Bristol-Myers Squibb for long-term leadership in biologics; gives the company full rights to a promising phase III compound, ipilimumab; significantly expands the company's oncology and immunology pipeline and provides access to novel antibody discovery technology." A deal could raise a fair amount of interest among the analyst community.
It's also important to note that the company is expected to deliver solid earnings. Bristol is expected to earn $2.01 a share this year and $2.19 a share in 2010, which implies an expected growth of almost 9%. Incidentally, the company trades at 10 times the 2009 estimate, which I find attractive as well.
Finally, there is the dividend. The current yield is about 5.7%, which sure seems like icing on the cake.
The Bottom Line
Dividends aren't the only factor to consider when analyzing or investing in a company. But a dividend yield can certainly be a nice sweetener. Regarding Bristol Myers, I like the fact that it trades at a low multiple of expected earnings, it has done a good job beating expectations, and the possibility that it could break through its 52-week high. The dividend is like the cherry on top of this ice cream sundae. (Read Dividend Facts You May Not Know to learn about other complicated issues you may not be aware of with dividends.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
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