We recently compiled a list of the 10 Best Blue Chip Dividend Stocks To Buy. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other blue chip dividend stocks.

When it comes to investing in stocks, investors often keep a close eye on the company’s financial health. Why? Because it directly impacts the potential returns on their investments. This is especially crucial for income investors, as solid financial health ensures regular dividend payments and steady dividend growth. In short, a company’s strong financial footing means it’s more likely to keep the cash flowing and the dividends climbing. Blue chip companies, especially those with over $100 billion in market cap, take the lead in this area. These firms are well-established, financially stable, and top players in their industries.

The Dow Jones Industrial Average is commonly regarded as an index of blue chip stocks. This widely watched stock market index includes 30 of the largest and most established publicly traded companies in the US. The index surged by over 4.7% since the start of 2024 and in the past 12 months, it gained 16.4%.

When comparing the performance of the broader market and the Dow Jones, both of which track large-cap U.S. companies, historical data reveals a high correlation between the two indices over time. However, there have been notable instances where their performances diverged significantly. According to a report from S&P Dow Jones Indices, the market substantially outperformed the Dow Jones over one- and three-year periods. Conversely, over the 30-year period leading up to 2019, the Dow Jones slightly outperformed the broader market. This indicates that although these indices often move together, short-term performance can vary, and specific market conditions and economic factors can influence which index performs better during different periods. The Dow Jones underperformed the broader market in 2023 by a wide margin.

While analysts frequently compare the performance of these two indices, it is important to note that the Dow represents only a small segment of the economy. In contrast, the broader market includes nearly 17 times as many companies. According to estimates from S&P Dow Jones Indices, more than $11.2 trillion investments were benchmarked to the broader market at the end of 2019. This is a staggering 350 times greater than the $32 billion benchmarked to the Dow. A key reason for the broader market’s outperformance compared to the Dow last year is that the market places more emphasis on the tech giants, which were the primary drivers of the wider market’s gains throughout the year.

Returning to the importance of blue chip companies, investors favor these firms because their strong financial health allows them to grow their dividends consistently. Dividend growth has remained a strong preference of investors over the years, prompting companies to increase their dividend payouts steadily. In this article, we will take a look at some of the best blue-chip dividend stocks.

Our Methodology:

For this list, we began by examining the current members of the Dow 30 that boasted a minimum market capitalization of $100 billion as of July 7. From this initial group, we specifically focused on companies that consistently pay dividends to their shareholders and have yields of at least 2%, as of July 7. These stocks were then ranked in ascending order of the number of hedge funds having stakes in them at the end of Q1 2024, as per Insider Monkey’s database. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Merck & Co., Inc. (NYSE:MRK)

Number of Hedge Fund Holders: 95

Merck & Co., Inc. (NYSE:MRK) is a New Jersey-based pharmaceutical company that provides innovative health solutions to its consumers. The pharmaceutical industry is currently facing a significant investment challenge. The performance of big pharma stocks over the past two decades has been notably unimpressive. This lackluster performance is primarily attributed to the growing risks inherent in the big pharma business model, which requires substantial investments in ongoing research and development for new drug trials.

What sets Merck & Co., Inc. (NYSE:MRK) apart from its peers is its ongoing success in leveraging acquisitions for continuous benefits over the years. In March this year, the company acquired Harpoon Therapeutics in a deal worth $656 million. This move will strengthen its oncology pipeline directly, and it may also open up opportunities for developing potent new combination therapies in the near future. Since the acquisition, the stock is up by 3% and has gained nearly 12% so far this year. Carillon Tower Advisers highlighted the stock’s strong returns in its Q1 2024 investor letter. Here is what the firm has to say about MRK:

“After posting lackluster returns in 2023, Merck & Co., Inc. (NYSE:MRK) got off to a strong start in January by raising the long-term sales forecasts for its oncology and cardiology pipelines and reporting solid fourth-quarter results, coupled with strong financial guidance for 2024. Merck shares also finished the quarter strong after receiving U.S. Food and Drug Administration approval in late March for a new cardiology medicine with the potential to contribute significantly to sales growth over the next several years.”

In addition to acquisitions, Merck & Co., Inc. (NYSE:MRK) spends a lot on R&D. In the first quarter of 2024, the company’s R&D expenses were $4 billion, down slightly from $4.3 billion in the same period last year. The company’s revenue for the quarter came in at $15.7 billion, up 9% from the prior-year period. The company highlighted in its earnings report that it is leveraging innovation to drive forward its extensive pipeline and is optimizing the effectiveness of its wide-ranging commercial portfolio for the benefit of its patients. The stock is currently trading at a forward P/E multiple of 14.64x, which is lower than the industry’s average of 18.88, indicating potential undervaluation related to its peers.

On May 28, Merck & Co., Inc. (NYSE:MRK) declared a quarterly dividend of $0.77 per share, which was in line with its previous dividend. The company has been rewarding shareholders with 13 consecutive years of dividend hikes. The stock has a dividend yield of 2.44%, as of July 7.

Of the 920 hedge funds tracked by Insider Monkey at the end of Q1 2024, 95 funds owned stakes in Merck & Co., Inc. (NYSE:MRK), compared with 98 in the previous quarter. The consolidated value of these stakes is more than $8 billion.

Overall MRK ranks 2nd on our list of the best blue chip dividend stocks to buy. You can visit 10 Best Blue Chip Dividend Stocks To Buy to see the other blue chip dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than MRK but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.