Dividends
Teva’s valuations have remained stagnant during the last few years–it is stuck between the high $30’s and low $40’s. With this poor shares performance, the only reward for investors is its dividend yield. The table below compares this dividend to other key players in the healthcare sector.
| Company | Yield | Payout | OCF Yield | 5-year Growth |
|---|---|---|---|---|
| Teva | 2.7% | 43% | 13% | 20% |
| Pfizer | 3.3% | 43% | 8.3% | -5% |
| AstraZeneca | 7.5% | 62% | 10.7% | 8.4% |
The payout ratio of Pfizer Inc. (NYSE:PFE) and Teva match at 43%, but Pfizer Inc. (NYSE:PFE) pays a 20% higher dividend. The company has also cut its dividend yield, reflected by the negative 5-year dividend growth rate. Teva has the highest OCF yield and the highest 5-year growth rate of 20%. Therefore, while its dividends are not the best in the industry, it certainly has the most room for dividend growth. The company has shown interest in increasing dividends in the past; shown by the average growth of 20%.
Way Forward
Teva met market expectations with its second quarter results. However, there was nothing to boast about, as revenues and margins both came below expectations. The company expects that the effects of the strategic shift will start materializing in the 4th quarter. There seems to be no immediate catalyst (drug launch, pipeline update) that can inspire some life into Teva’s shares. NTEs and laquinimod are a possible investing theme for the future, but the market will wait for solid news before jumping in again, especially considering the poor past performance of its shares.
Teva’s dividend yield is mediocre at 2.7%, but has substantial room to grow. The company is focusing on growth, but if these ambitions fail, it can always go back to increasing dividends. The acquisition of Taiyo can have a positive impact on generic revenues. Although there are more lucrative healthcare investment options available, investors can still bet on success of the NTE strategy and the potential of laquinimod.
The article A Safe Investment With Growth Promise originally appeared on Fool.com and is written by Mohsin Saeed.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mohsin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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