Best Dividend Stocks: Pharmaceuticals and BioTechnology

Historically, Pharmaceuticals and Biotechnology has been one of the most unstable market segments owing to the uncertain prospects due to FDA regulations of drug approval. Most notably, startups in the sector are more susceptible to drug phase trial for their survival. The market valuation of startups has dropped to few cents a share from double digit dollar figures on FDA disapproval. More to that, there is intense competition for the same drug, even in the startup segment. Hence, to minimize the risk to which this segment is prone, it becomes necessary to shop for companies with a well-diversified portfolio.  Unfortunately, there are not many choices when it comes to select such companies. There are only a few companies with big market capitalization and drug patents for a variety of diseases. But, these companies have also been paying good dividend return over the past few years. Moreover, less of competition has made these companies acquire a high rate of growth over the past few years. Even if some serious competition from a promising startup threatens the big firms, they use their balance sheet clout to acquire the startups to eliminate competition. Because of these reasons, having some exposure to this market segment makes for a meaningful investment.

Based on my research, these are the stocks of big pharmaceutical companies paying good dividend returns.

Company name	Stock Ticker	Dividend over last 12 months*	Average annualized dividend over last 5 years*	Stock price range* (last 1 year)	Stock price range* (last 5 years)	Current stock price	Expected Payout ratio (based on recent prices)
GlaxoSmithKline	GSK	2.55	2.33	41.19-53.82	36.40-53.82	42.96	5.94%
Pfizer, inc.	PFE	1.08	0.96	27.51-35.53	17.45-35.53	35.07	3.08%
Merk & Co.	MRK	1.79	1.70	52.49-63.62	31.92-63.62	58.82	3.04%
Sanofi SA	SNY	1.61	1.66	43.31-57.42	32.22-57.42	53.60	3.00%
Novartis	NVS	2.67	2.54	84.17-106.10	57-106.10	105.81	2.52%
Amgen	AMGN	2.80	2.00	114.93-173.60	52.26-173.60	103.27	1.71%

*All amounts are in USD

Disclosure: I don’t have any position in the above mentioned stocks, and don’t plan to initiate one in the next 72 hours.

Best Dividend Stocks: Consumer Goods Market

Investopedia defines consumer goods sector as companies that are engaged in the business of items purchased directly by individuals rather than by manufacturers and industries. The sector includes food production companies, clothing chains, beverages, automobiles, fashion, and electronics. Broadly speaking, these industries are directly related to the spending power of end consumer and the growth in this market segment is highly correlated with the GDP growth and Purchasing Power growth of consumers. While industries like food production, clothing, beverages are tied to “essential” goods; automobiles, fashion are tied to “luxurious” goods. Electronics can be places somewhere in the middle of the two categories as high-end electronics (such as 700$ price tag Apple iPhone) is more of a luxury item, while a 250$ Asus Zenfone-2 is a phone which has similar features as that of iphone but possibly at reduced performance and brand name.

The industry tied to “essential goods” is generally stable over long term and show substantial growth as well. This industry is also most immune to economic recessions as people won’t simply stop eating basic food or wearing basic clothes in a down economy. Moreover, there are behemoth sized retail chains in these sectors, which provide consistent cash flow needed for future growth. As such, it became a good idea to invest in this industry if the stock has good dividend payout and stock prices are at low of the seasonal cycles. Based on these factors, my research indicate the following stocks to be a winner for stocks with good dividend payout in “essential consumer goods” category

Company name	Stock Ticker	Dividend over last 12 months*	Average annualized dividend over last 5 years*	Stock price range* (last 1 year)	Stock price range* (last 5 years)	Current stock price	Expected Payout ratio (based on recent prices)
McDonald Corporation	MCD	3.40	3.00	87.62-101.99	72-104	97.87	3.47%
Proctor & Gamble	PG	2.58	2.40	77.10-93.89	59.83-93.89	82.30	3.14%
Kellogg  Company	K	1.96	1.80	58.83-69.89	47.19-69.89	64.50	3.03%
The Coca Cola Company	KO	1.27	1.13	39.06-45	31.10-45	41.48	3.00%
Johnson & Johnson	JNJ	2.85	2.64	95.10-109.49	58.98-109.49	101.11	2.81%
Wal Mart	WMT	1.94	1.76	70.36-90.97	50.85-90.97	73.84	2.65%

*All amounts are in USD

While some stocks in the above list are not in the low of their 52 week cycle (e.g., MCD, JNJ), given their undisputed market dominance over the last few years makes them a good investment candidates for growth and dividends.

Disclosure: I don’t have any position in the above mentioned stocks, and don’t plan to initiate one in the next 72 hours.

Best Dividend Stocks : Oil Market

Recently, Oil industry has been suffering a major setback in the stock prices, and the oil prices has dropped from $100 a barrel to a low of ~$40 a barrel. Analysts have attributed this fall in the oil prices to a rising supply inventory due to excessive drilling by OPEC countries to gain a market share. However, being a natural and scarce resource, the demand will cross the supply and the market will rebound. Moreover, most of the oil market is captured by 4-5 major corporations, and because of that their business is pretty stable. Based on my research using the 3 points listed above, I have come up with the following companies which are trading at a seasonal low price and yet, their dividend is pretty stable over the last many years.

 

Company Name	Stock Ticker	Dividend over last 12 months*	Average annualized dividend over last 5 years*	Stock price range* (last 1 year)	Stock price range* (last 5 years)	Current stock price	Expected Payout ratio
Royal Dutch Shell	RDS.A	3.76	3.50	54.31-83.32	54.71-83.32	56.97	6.6%
BP plc	BP	2.40	2.04	34.88-52.33	34.88-53.15	40.00	6.0%
Chevron Corporation	CVX	4.28	3.65	93.26-135.10	72.52-135.10	94.24	4.54%
Exxon Mobile	XOM	2.80	2.47	81.49-104.76	57.49-104.76	82.76	3.38%

*All amounts are in USD

While there are other companies, most notably in the oil exploration and drilling sector, which provide healthy dividend, their business is most affected due to the oil market downturn and it will take them some time to come out of their financial difficulties. Hence, this is a good idea to invest in the oil provider companies at this point of time.

Disclosure: I am Long BP

How to Shop Dividend Stocks

Dividend stocks are very good investment for the value investors. Such stocks provide steady income on a regular basis in accordance to the dividend schedule of the company. Most companies declare their dividends on a quarterly basis. Because of this, the income from the dividends has to be reported to the IRS for the qualified year for tax purposes. Most retail investors holding the "ordinary stocks" receive "ordinary dividends" ans this income counts toward the ordinary income of the individual. That's why the dividend gain can be considerable less after taxes, especially if your income from other sources is in the higher tax brackets. Under such circumstances, it is a good idea to shop for stocks which provide a high dividend payout as a cost of each unit of stock. Many companies borrow money as debt to pay towards shareholders dividend. Such companies will have a handsome dividend payout, but the stock price of such companies will keep on plummeting due to decreased stock holder equity caused by increased liabilities on the balance sheet. Hence, it becomes important to research about the dividend history and the historic stock price before making a decision about investment in dividend stocks. Some rules of thumbs when considering buying a dividend stock are:

1. Check the dividend payout history. Dividend payout is defined as Total Dividend Paid in the year/Stock price. Since stock price in an year is fluctuating, it makes sense to see the fluctuations in the price and use an average price for that year. Make sure that stock price is not widely fluctuating, and so is the dividend payout. A steady payout ratio over last few years is an indicator of good health of the company. 

2. Shop for the dividend stocks when the stock price is low during cyclic downturn in the market. Assuming that the net dividend paid after you make your investment is in the same range as was being paid at the time of your investment, your payout formula in point #1 will use this low stock price in the denominator. 

3. Make sure that the stock price sees cyclic downturn and upsides, and is not constantly on decline for more than a year. 

Some stable market segments such as oil, pharmaceuticals, and consumer goods industries have large corporations paying a steady and healthy dividend over last few years. Such companies make the best fit to invest in dividend stocks during the market downturn.  In next few posts, I will share some of the high dividend payout stocks from each of such market segments.