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Key Takeaways:
- Merck’s dividend yield is 4.0%, which is nearly its highest yield in years. The stock also trades at a multi-year low P/E ratio.
- The dividend remains well-covered in 2025 with a 36% payout ratio and room for growth.
- Based on analyst consensus forecasts, the stock could deliver around 17% annual returns by the end of 2027 driven by earnings growth and a growing dividend.
Merck is a global pharmaceutical giant best known for cancer immunotherapy drug Keytruda and HPV vaccine Gardasil.
After a strong multi-year run, the stock pulled back significantly over the past year due to investor concerns about Keytruda’s patent expiration in 2028 and a sharp decline in COVID-related sales.
But now, with a forward P/E ratio near historic lows and long-term growth drivers in place, sentiment appears to be turning.
The stock trades at a sizable discount to historical averages, while Merck continues to grow its core oncology and vaccine segments. Add in a 4% dividend yield, and long-term investors may find this an attractive entry point.
Analysts Think the Stock Is Undervalued Today
Merck currently trades around $80/share, but based on TIKR’s guided valuation model, the stock could reach ~$117/share by the end of 2027.
That implies +46.9% total returns, or about 17% annually, if earnings improve and the stock returns to a more typical valuation multiple.
The forecast assumes operating margins recover to more normalized levels near 42%, supported by continued growth from Keytruda and Gardasil, along with contributions from newer pipeline assets like Winrevair and sotatercept.
At just 9x forward earnings, Merck’s current valuation looks overly pessimistic given its strong earnings base and long-term growth drivers.
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A 4% Dividend Yield Near Its Highest Level in Years
Merck’s forward dividend yield is 4.0%, well above its 5-year average of 3.1% and near the top end of its historical range.
This elevated yield is mainly due to the stock pulling back from its 2022 highs, driven by investor concerns over Keytruda’s patent expiration in 2028, a sharp drop in COVID-related sales, broader weakness in large-cap pharma stocks, and some near-term margin pressure.
Meanwhile, Merck continued to raise its dividend, which caused the yield to rise as the share price declined.
Historically, Merck has traded with a lower yield in the 2% to 3% range, making today’s 4% level stand out. The company’s strong free cash flow and solid balance sheet continue to support its ability to pay shareholders consistently.
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Dividend Payout Remains Comfortable With Room to Grow
Merck is expected to earn $8.86 per share and pay out $3.22 in dividends in fiscal 2025, putting the payout ratio at a healthy 36%, well below industry averages and leaving room for continued dividend growth.
By 2027, analysts expect Merck to grow earnings to $10.56 per share and dividends to $3.53, reflecting about 11% annual EPS growth and 3%–4% dividend growth, with the payout ratio staying near 33%.
This earnings growth is expected to come from rising demand for core products like Keytruda and Gardasil, margin recovery, and contributions from new drugs such as Winrevair and sotatercept. Merck is also expanding its pipeline and scaling across global markets to support long-term profitability.
Merck has raised its dividend for 14 consecutive years, adding confidence in its ability to continue rewarding shareholders through different market cycles.
See Merck’s full growth forecast and analyst estimates. (It’s free) >>>
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
