The claim is that Merck cannot afford to pay its dividend, over time. The further claim is that its return on equity(!) is. . . poor. Uh-huh.
As we all now well-know, Merck now has the world's highest revenue drug franchise, in Keytruda®, and is generating a staggering ~$20 billion in operating income, on sales of over $60 billion a year -- which deliver over $5.70 a share in EPS. Its dividend is a tiny obligation compared to those earnings. Oh, and it generates free cash flow of over $15 billion (with a "b"!) a year. Hilarious. [This is why Bernie is angry about its pricing hubris, for life-saving medicines.] And so, Yahoo needs some human editors, for this drivel:
. . .Merck has a three-year median payout ratio as high as 110% meaning that the company is paying a dividend which is beyond its means. The absence of growth in Merck's earnings therefore, doesn't come as a surprise. Paying a dividend higher than reported profits is not a sustainable move. That's a huge risk in our books. . . . [Ed. Note: Merck intentionally "reports" very low net US profits, to minimize its tax burden. The relevant metric for dividend coverage is free cash flow. See above -- not to mention that a dividend is a permissive, not mandatory, payment. Cash here is what matters; and Rahway generates truckloads of it.]
Additionally, Merck has paid dividends over a period of at least ten years [Ed. Note: for over seven decades -- but why quibble, right?], which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 37% over the next three years. As a result, the expected drop in Merck's payout ratio explains the anticipated rise in the company's future ROE to 38%, over the same period. . . .
In total, we would have a hard think [Ed. Nota bene: SIC; as in original] before deciding on any investment action concerning Merck. Specifically, it has shown quite an unsatisfactory performance as far as earnings growth is concerned. . . .
Hilarious. In truth, I felt like some fair balance was needed, given how viciously we've savaged Mr. Davis' specious suit prospects -- against his largest customer. Smile -- onward, to a happy V-Day -- for one, and all!
नमस्ते
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