Key Takeaways:
- Currently, Merck offers a 3.9% dividend yield.
- Over the next 3 years, EPS is expected to grow over 10% annually, while dividends are expected to grow in the low-single-digits.
- Analysts have a consensus price target of $109/share for Merck, which implies just over 35% upside potential for the stock today.
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Merck is a mature company with a well-established track record, a healthy balance sheet, and a commitment to rewarding shareholders.
With a 3.9% dividend yield, consistent earnings growth driven by its strong pharmaceutical portfolio, and analysts projecting 35% upside, Merck is starting to look like an attractive option for long-term investors.
With the stock trading well below its peak, Merck appears to be a dividend growth stock worth a closer look today.
Why Has Merck’s Stock Price Dropped?
Merck’s stock is down nearly 40% in the past year, and aside from the general market uncertainty, it mostly comes down to these two key reasons:
- Sales of Gardasil (an HPV vaccine that’s one of Merck’s best-selling products) have slowed in major markets like China, putting pressure on short-term growth.
- Investors are worried about the upcoming 2028 patent expiration for Keytruda, Merck’s top-selling cancer drug.
Even with the pullback, Merck continues to post strong profits and return cash to shareholders. If the outlook becomes more favorable, the stock could recover.
Analysts Think The Stock Has Over 35% Upside Today
Analysts believe Merck’s stock has more than 35% upside from current levels with an average price target across 23 analysts of $109/share.
The stock looks significantly undervalued today.
See why Merck looks undervalued today with TIKR (It’s free) >>>
1: Dividend Yield
Merck currently offers a trailing dividend yield of around 3.9%, which is right near the stock’s 5-year high.
This high dividend yield is mostly due to the stock trading cheap today, while management has slowly grown dividends over time.
Find high-quality dividend stocks that are even better than Merck today. (It’s free) >>>
2: Dividend Safety
At the end of 2024, Merck had a dividend payout ratio of 40.8% based on its normalized earnings-per-share of $7.65.
That’s well within the 0-70% payout ratio range we like to see for healthy, sustainable dividends.
Additionally, Merck is expected to grow earnings at a higher rate than dividends over the next several years, which gives the company flexibility to reinvest in R&D while continuing to reward shareholders.
Management has also made it clear they’re focused on growing the dividend over time. On the most recent Q1 earnings call, Merck’s CFO Caroline Litchfield emphasized that Merck’s commitment to paying dividends:
Check out MRK’s full earnings transcript (It’s free) >>>
2023’s earnings were low because of:
- Falling COVID-19 treatment sales
- Higher R&D and acquisition-related expenses
- Currency exchange impacts
- Pressure from generic competition
But Merck quickly recovered in 2024 with the strength of its core drugs, like Keytruda and Gardasil.
See Merck’s full growth forecast. (It’s free) >>>
3: Dividend Growth Potential
Merck has raised its dividend for 15 straight years, and that trend is expected to continue.
Analysts expect earnings to grow over 10% annually over the next 3 years, while dividends are projected to see about 2% to 5% annual growth over the next 3 years. The pace is steady and reliable, supported by a strong balance sheet and consistent earnings.
It may not be the fastest dividend grower, but for long-term investors, that kind of predictability can go a long way.
TIKR Takeaway
Merck looks undervalued today and is offering its highest dividend yield in the past 5 years.
With a strong track record and consistent dividend growth, Merck might be worth a closer look for investors looking for stability and dividends.
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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!
