Health and Healthcare

Merrill Lynch 4 Top Pharmaceutical Dividend Stocks To Own For 2016

Lee Jackson

Published: November 24, 2015 10:47 am

Last Updated: January 13, 2020 4:48 pm

Despite the howling from political candidates trying to make the top drug-makers their whipping boy in populist campaign efforts, the need and demand for pharmaceuticals will only continue. This is especially the case when you consider that we now live in a world with an aging population that is going to be popping more and more doctor-prescribed pills.

While pricing and cost concerns won’t go away completely until the election cycle winds down, now may be an ideal time to add the top yielding stocks to portfolios for 2016.

24/7 Wall St. has screened the Merrill Lynch research universe for the top pharmaceutical stocks that are rated as Buy at the company that also which also pay investors solid dividends. The companies we found have long histories of paying and raising their dividends, and make good sense for conservative growth and income portfolios.

Abbott Labs

This is a top pharmaceutical stock with very solid growth potential. Abbott Laboratories (NYSE: ABT) is a leading diversified global healthcare company that develops, manufactures and markets branded generics, medical devices, nutritional products, and diagnostic solutions. The company recently agreed to acquire the equity in Minnesota-based Tendyne Holdings that it does not already own for $250 million plus future payments tied to regulatory milestones. The Merrill Lynch team likes the purchase and the way the company is putting their substantial balance sheet to work.

The company also offers a diversified large cap play as earnings are split between five well positioned business segments: Nutritional (31% of revenues), Vascular (13%), Generic Pharmaceuticals (20%) and Diagnostics (25.5%) and Diabetes (10.5%).

Abbot posted solid third quarter earnings and the emerging market sale growth continues to impress. Merrill Lynch has advised investors since the August sell-off to stay with the company.

Abbot investors are paid a 2.11% dividend. The Merrill Lynch price target for the stock is $53, and the Thomson/First Call consensus is at $50.97. Shares closed Monday at $45.44.

Eli Lilly

This stock checks in at high on the global pharmaceutical lists at many top Wall Street firms and is on the Merrill Lynch US1 list. Eli Lilly and Company (NYSE: LLY) is a global healthcare company with numerous core products in a number of primary-care pharmaceutical markets. The company generates revenues from its pharmaceutical product and animal health segments.

The product portfolio includes Zyprexa (schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder – ADHD), Erbitux (cancer) and Alimta (chemotherapy). Lilly also has a strong presence in the diabetes market.

Lilly reported third quarter earnings $0.89, which was above the consensus of 0.76. Third-quarter revenues came in just under consensus is at $4.959 billion, reflecting some potential generic competition for Cymbalta and Evista in the U.S. as well as some negative currency movement. Trajenta, Strattera, Forteo and the animal health business should all help to offset the impact of genericization of former top selling drugs.

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The company’s new cancer drug Cyramza won FDA approval for label expansion recently. It treats patients suffering from metastatic colorectal cancer (mCRC). This was the fourth Cyramza approval in a one year period; it already has approval to treat advanced or metastatic gastric or gastroesophageal junction adenocarcinoma and metastatic non-small cell lung cancer (NSCLC). Cyramza has so far generated sales of $67.5 million.

The Merrill Lynch team and other analysts on Wall Street love the company’s product pipeline and point to Lilly’s Solanezumab drug for Alzheimer’s phase 3 data which had positive clinical results reported in late July, and Jardiance, the company’s drug for diabetes posted very positive clinical results.

Lilly shareholders are paid a solid 2.37% dividend. The Merrill Lynch price target for the stock is $104, and the consensus price target for the stock is $96. Shares closed Monday at $84.74.

Merck

This top company remains a leading healthcare stock that is on the focus lists of many of the firms we cover. Merck & Co. Inc. (NYSE: MRK) sells numerous prescription medicines, vaccines, biologic therapies, and consumer care and animal health products, are provided to customers in more than 140 countries. Merck is the world’s fourth-biggest drug-maker by revenue and boosted its annual profit forecast earlier this year. The company reported inline third quarter revenues and cost driven earnings per share that beat the Merrill Lynch estimates.

The pharmaceutical giant recently announced very encouraging data from two pivotal phase III clinical studies for its investigational antitoxin bezlotoxumab for prevention of recurrence of Clostridium difficile (C. difficile) infection. Data from the phase III studies dubbed MODIFY I and MODIFY II evaluated the use of bezlotoxumab alone or in combination with actoxumab. Both the studies met their primary efficacy endpoint.

Earlier this fall the U.S. Food and Drug Administration (or FDA) granted breakthrough therapy designation to Merck’s Keytruda, as the company managed to prove that the drug is better than existing therapies for treating non-small cell lung cancer (or NSCLC). Keytruda was tested on a clinical subgroup of 61 patients who had been treated either by chemotherapy or targeted therapy and had tumors expressing the protein PD-L1. In patients that treated with Keytruda, tumors shrank by 41%, and the effect continued for 2.1 to 9.1 months. However, the relationship between Keytruda use and survival rate or disease symptoms is yet to be conclusively proved.

Merck shareholders are paid a very solid 3.33% dividend. The Merrill Lynch price target for the stock $63, and the consensus is posted at $62.53. Shares closed Monday at $54.01.

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Pfizer

This is a stock that could be offering investors the best value at current trading levels. Pfizer Inc. (NYSE: PFE) has a very strong pipeline and the fact that Pfizer is the world’s largest drug manufacturer by sales value supports the Wall Street notion that the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years.

Pfizer has just recently announced the details in what would be one of this year’s biggest deals, a $160 billion merger with Allergan in which shareholders of the stock would receive 11.3 shares of Pfizer. Though complete specifics are still emerging, and the deal would be the largest 2015 acquisition.

The Treasury Department announced recently that they are working on new rules for corporate tax inversions, which is potentially what the Pfizer/Allergan deal would be, and could possibly throw wrench into the negotiations. They still maintain that the standalone value for the pharmaceutical giant is $45.

Pfizer has announced that it is starting 20 clinical trials this year and more soon after on treatments to conquer cancer as it also seeks to gain leadership in one of the hottest, and most lucrative, areas of medicine. Pfizer currently has eight approved cancer medicines, four of them launched in the last four years. It’s running late-stage patient tests on five of those drugs for additional uses, has three other drugs in late-stage testing which is usually the last round before seeking regulatory’ approval. In addition, the company has 14 other drug programs in early stages.

Pfizer investors are paid a tidy 3.57% dividend. The Merrill Lynch price target for the stock is set at $39. The consensus price target for the stock is posted higher at $40.27. Pfizer closed Monday at $31.33.

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While political saber-rattling won’t go away anytime soon, the reality these companies all provide drugs and in some cases medical devices that help hundreds of thousands of people daily lead a better life. Historically these companies and their stocks have all made good sense for conservative portfolios looking for income. Big Pharma stocks have also been considered defensive investments on a historical basis that investors have flocked to during times of unrest or when the economic picture is not so positive.