3 Dividend Stocks to Avoid if You Want Big Returns

With rates at an all-time low, now is the ideal time to invest in dividend stocks, which offer steady payouts to shareholders. But if you’re concerned about value and growth, as most investors are, avoid these three big pharma stocks, which are unlikely to raise their dividends in the near future.

1.     Merck & Co (MRK)

Keytruda, an immuno-oncology drug, is Merck’s star drug, and at the moment, it’s the only thing keeping the company’s product lineup afloat. The drug is on track to hit $1 billion in sales this year, but more than a dozen other drugs continue to lose ground.

First-quarter sales were down more than 1% compared to the same period last year.

Merck has raised its dividend payout for the last five years to an annualized rate of $1.84. With that said, payments have exceeded profits for two out of the last three years.

The company’s recent $14.2 billion sale of its consumer-care business helps ensure Merck can continue paying its dividend. But the company isn’t likely to raise its dividend anytime soon.

2.     Perrigo Company (PRGO)

After Joseph Papa stepped down as CEO of Perrigo in May, accounting found that the company’s estimated value of assets, including its brands and patents, may not have been entirely accurate. The blunder caused the company to record a $467 million impairment charge in the first quarter.

Adding to that, Perrigo has thin margins. The impairment charge dragged earnings to -$1.53 per share over the last year.

Perrigo has raised its annual dividend every year for the last 14 years, but if it can’t get its impairment charges under control, future hikes are unlikely.

3.     Pfizer (PFE)

Pfizer has been struggling to grow its top line since 2012 when it started losing Lipitor sales to generic competition. While its other star drug Lyrica grew 4% in the first quarter of last year, it’s following the same pattern as Lipitor. Lyrica will feel generic pressure in a few years as well.

Pfizer is in a better position than Merck to restore growth, but its current dividend payout is unsustainable. Pfizer recently raised its dividend to $1.20, which equates to 98% of the company’s 12-month earnings.

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Daniel Simmons