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Gilead Sciences (NASDAQ: GOLDEN) It is a fairly famous pharmaceutical company these days. His antiviral remdesivir is the hot drug of the moment due to its apparent success in clinical trials with patients who have COVID-19, the disease caused by the SARS-CoV-2 coronavirus.
A hot drug sparks a lot of interest in an action, which is the key reason why Gilead’s actions have generally increased since the world became known or initially knew remdesivir (formerly a treatment for Ebola). But I think that as an investment, the company has another very attractive factor that is not receiving as much attention, or none.
Image source: Getty Images.
Participation of the profits
That factor under the radar is Gilead’s quarterly dividend, which is generous relative to the broader stock market average dividend, and is consistent and reliable to boot.
Since the company started investor pay in 2015, it has steadily increased from $ 0.43 to the current level of $ 0.68 thanks to its annual increases. At the moment, the dividend yield is 3.5%, which compares very favorably with the average yield of 2.1% of all S&P 500 shares (a group that, to be fair, includes numerous companies that do not pay dividends).
However, as with any dividend investment, we must consider whether the Gilead payment is sustainable. After all, there is little point in buying a stock for your dividend if that payment will be reduced or eliminated, which is not an unusual occurrence in an economy rocked by the coronavirus pandemic.
Looking at the company’s fundamentals in recent history, it typically lands in the black annually, even after a big drop from its peak in sales in 2015, when the hepatitis treatment market ruled (although it has recently been been recovering on both the top and bottom lines). From that year on, even with some terrifying declines in net sales and earnings, his annual net margin never fell below 18%.
Wide margins generally mean strong cash flow, and that’s the case with Gilead. The company’s free cash flow is not at 2015 levels, but it is still quite robust. For the full year of 2019, that order line grew a healthy 11% year-over-year to more than $ 8.3 billion. That year, the company’s total expense on its dividend was $ 3.2 billion, making the cash dividend payout ratio 39%. So the dividend is, at a minimum, sustainable for now.
Assuming Gilead manages to increase that free cash flow figure again, there will be plenty of room for more of those annual dividend increases. At least initially, remdesivir will not be a money order, since the company has said it will donate the doses at hand. A more promising avenue for growth is the company’s HIV drug program, which is packed with no fewer than five highly successful drugs. It also has two treatments underway, vesatolimod and elipovimab, which could completely cure HIV.
Another possible box office hit, and perhaps a multifaceted one, is the immune drug filgotinib, a rheumatoid arthritis treatment that is now under priority review by the FDA (it has also been introduced to regulators in Europe and Japan). The global market for rheumatoid arthritis is estimated at tens of billions of dollars. In addition to that, filgotinib is being evaluated for other indications such as ulcerative colitis and Crohn’s disease.
Power and potential
Of course, Gilead is not the only game in this city; There are other established, cash-rich pharmaceutical companies that pay reliable dividends.
Abbott Laboratories (NYSE: ABT) He’s been increasing his own payout for decades, to the point that he’s a dividend aristocrat. Its 2013 spin-off, AbbVie (NYSE: ABBV) He inherited a place in that celebrated group of actions and has kept it increasing the distribution on a regular basis (he is also the great rheumatoid arthritis player with his Humira). Gilead’s 3.5% return is close to the midpoint of 1.6% for Abbott Labs and 5.5% for AbbVie.
But in my opinion, Gilead has explosive potential immediately in front of him, more than Abbott Labs, AbbVie, or many other dividend payers at Big Pharmaville. Leaving Remdesivir aside, Gilead already has a strong portfolio and an excellent portfolio. Meanwhile, the company’s strong cash-generating trends, its ability to grow and its high profitability make it a good stock for income investors.
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