Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we're going to take a look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. For reference, here is last week's selection.
This week, I'm going to beat a dead horse and throw generic-pharmaceutical giant Teva Pharmaceutical (NAS: TEVA) into the mix.
If it seems as if I'm cheering for Teva a bit too much, that's because I probably am. Despite not owning the generic behemoth in my personal portfolio, it's my favorite pharmaceutical company, and for good reason: Its pipeline is rock solid.
Teva currently has a portfolio consisting of 1,450 molecules, with countless applications awaiting approval worldwide. The great thing about Teva's business is that there's a constant supply of drugs coming off patent, which means it's never at a loss for revenue. And as a generic-drug producer, it can avoid those ridiculously high clinical study research costs.
As Teva continues to grow its multidimensional branded-drug division -- led by multiple sclerosis treatment Copaxone -- side by side with its generic division, its larger peers are diving head-first off the patent cliff. Pfizer (NYS: PFE) recently lost the best-selling drug in the world, Lipitor, and sales nosedived 25% in just the fourth quarter. Merck (NYS: MRK) is in the process of losing patent exclusivity on its best-selling oral treatment for asthma and allergies, Singulair, which was responsible for 11% of the company's total sales in 2010.
But bad news for the branded-drug industry means Teva is licking its chops. Here's a short sampling of some of the 14 branded drugs awaiting approval from the FDA, along with the corresponding branded sales of those drugs in 2011:
Annual Branded Sales
Source: Teva Pharmaceutical annual report. Figures in millions.It's my party and I'll fly if I want to!Keep in mind that Teva isn't the only horse in this race. Mylan (Nasdaq: MYL) and Watson Pharmaceuticals (NYSE: WPI) are also taking full advantage of the nearly $29 billion worth of branded drugs coming off patent in 2012. Both companies seem to love picking on Pfizer, because Watson has a generic version of Lipitor already on the market, while Mylan is producing a generic version of glaucoma treatment Xalatan.
Yet none of these companies can quite stack up to Teva Pharmaceutical, based on what I'm seeing. Mylan offers a faster five-year growth rate (12.1%, versus Teva's 7.5%), but Teva is considerably cheaper than Mylan and Watson on a forward earnings basis (7.1, versus 8.6 for Mylan and 10.9 for Watson). Most importantly -- and the whole reason Teva is featured in this article -- Teva pays out a dividend, which is something neither Mylan nor Watson can claim.
Speaking of quarterly payments, check out Teva's nearly exponential dividend growth since 2002:
Source: Dividata. (Note that this chart is extrapolating the 2012 payout from Teva's most recent dividend. Quarterly payments, while similar, are rarely identical.)
As if growing its dividend at a brisk annual average of 29.6% since 2002 isn't enough, Teva is being valued at only 7 times forward earnings. That means we're looking at a company with a seemingly endless supply of new products trading at a PEG ratio right at 1, with a single-digit forward P/E and a dividend yield that at the end of the year could be significantly higher than the current 1.8%. Where do I sign up?
If you're craving even more dividend ideas, I invite you to download a copy of our latest special report, "9 Rock-Solid Dividend Stocks," which is loaded with income-producing companies hand-selected by our top analysts. Best of all, this report is free, so don't miss out!
- Add Teva Pharmaceutical to My Watchlist.
At the time this article was published Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. He believes there's nothing generic about generic-drug growth. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of Teva Pharmaceutical Industries and Pfizer. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
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