Merck & Co. Inc. Pays Out All of Its Profits as Dividends. Is This Generous Policy Doomed to Collapse? "Whoa! What's going on? So far, so frightening. No company can afford to spend its entire earnings on dividend checks, right? There are other costs to consider, and this policy will surely eat up Merck's cash reserves in the long run." http://www.fool.com/investing/general/2014/05/16/merck-co-inc-pays-out-all-of-its-profits-as-divide.aspx Dividend payouts are keeping MRK stock afloat. More cash is now needed. Ken isn't going to let share price slip until he and cronies cash out. Another round of cuts or sell off another business will be required before the end of Q2 results are filed. Buckle up.
When you have tons of cash, huge profits and nothing to invest in, the right decision is to give it to shareholders. It may be the only good decision Ken has made yet.
The minute you announce you can't pay dividends any more share price will plummet. Ken will do ANYTHING required to find the cash to keep the dividends going. ANYTHING including selling off pipeline, existing products, or deeper cost cutting. Stay tuned.
What an asshat the OP is. Go read the WHOLE article. A couple of salient points for those who are too busy looking up to see if the sky is falling on them to click through: Set against that backdrop, Merck's non-GAAP payout ratio drops to just 49% -- a perfectly reasonable and sustainable figure. It's still a bit high in context of the Dow, where the median ratio stands at 39%, but it's not outrageous at all. AND So Merck isn't perfect, given its fairly recent return to regular dividend boosts. But the payout policy is also not destined for an inevitable collapse, as the GAAP payout ratio might have you believe. Don't let Merck's sky-high payout ratio scare you away from an otherwise attractive income stock and its generous 3.1% yield.
Thanks for the very intelligent post. First one on this board for quite some time. The quote from the movie Wall Street comes to mind:"don't get emotional about stock." Merck is still a good safe investment. Will remain so for quite some time. It's fundamentals are good. It remains part of the DOW for a reason.
