Teva Pharmaceutical Industries Limited develops, manufactures, markets, and distributes pharmaceutical products worldwide. This dividend achiever has paid dividends since 1984, and has increased them for 13 years in a row.
The company’s last dividend increase was in February 2013 when the Board of Directors approved a 25% increase in the quarterly distribution to 1 NIS /share. The company’s peer group includes Actavis (ACT), Taro Pharmaceutical (TARO) and Revlon (REV).
Over the past decade this dividend growth stock has delivered an annualized total return of 8.10% to its shareholders.
The company has managed to deliver a 7.30% average increase in annual EPS since 2003. Analysts expect Teva Pharmaceutical to earn $5.07 per share in 2013 and $5.54 per share in 2014. In comparison, the company earned $2.25/share in 2012. Over the next five years, analysts expect EPS to rise by 6.81%/annum.
Earnings per share have been following a general uptrend, which has been quite volatile however. The company’s US operations have benefited from the recent launches of new generic products such as Lexapro and Actos. The patent cliff experienced by big pharma is beneficial for generics manufacturers such as Teva. Generics account for over half of the company’s sales. The company is under intense competition in the generic pharmaceuticals market, where being first to file might offer a slight competitive advantage to the filer.
However, Teva is not immune to the patent cliff itself. Its multiple-sclerosis drug Copaxone, accounting for 17% of sales in 2012, will face competition from Mylan Laboratories as early as 2015.
Future growth could also be realized from strategic acquisitions. The firm is expecting to benefit from the 2011 acquisition of Cephalon in terms of synergies, as well as adding its portfolio of products through its distributions pipeline.
The return on equity for Teva has been on the decline from a high of 27% in 2003. Currently, it is below 10%, but if earnings projections materialize, it could go up to 15%. I generally want to see at least a stable return on equity over time. I use this indicator to assess whether management is able to put extra capital to work at sufficient returns.
The annual dividend payment in US dollars has increased by 27.60% per year over the past decade, which is higher than the growth in EPS.
A 27% growth in distributions translates into the dividend payment doubling almost every two and a half years on average. If we look at historical data, going as far back as 1990, one would notice that the company has managed to double distributions every three years on average.
The dividend payout ratio has increased from 12% in 2003 to 46% in 2012. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Teva is attractively valued at 17.20 times earnings, yields 2.80% and has a sustainable distribution. Unfortunately, I am not certain if it has the durable competitive advantages that would help it differentiate itself from competitors. It looks like in the generic drugs industry, companies do not have any competitive advantages related to branding, that would allow them to charge premium prices. In the long-run, commodity producers cannot realize excessive profits, that would translate into fat future dividends. As a result, I do not plan on initiating a position in the stock.
Full Disclosure: None
- Dividend Achievers Offer Income Growth and Capital Appreciation
- BHP Billiton (BBL) Dividend Stock Analysis
-\Dividend Stocks for Young Investors
- The World’s Best Dividend Portfolio
- Most Widely Held Dividend Growth Stocks
The S&P Dividend Aristocrats index is an elite group of companies, members of the S&P 500, which have managed to increase dividends ...
I just received notification that low cost broker Loyal3 is shutting down, effective May 22 2017. Loyal3 was a decent commission free alte...
In a previous article I discussed that I am on track to have my dividend income cover my expenses sometime around 2018 . I received a few qu...
As part of my monitoring process, I review the list of dividend increases every week. I usually focus my attention to companies that have r...
Last week, I shared the 2017 list of dividend aristocrats . The most common question I received focused on which companies are attractively ...
I look at the list of dividend increases every week, as part of my monitoring process. I then narrow the scope by focusing on companies tha...
This guest post has been written by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blo...
Successful dividend growth investing relies on finding companies at an attractive price which can grow earnings and dividends over time. A...
People usually get emotional when the topic of rent versus buy is brought up. One group swears by owning a home, and believes that it is a g...
The Procter & Gamble Company (PG) provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, Ind...