For my retirement account, I’m adding high dividend yielding, high quality companies. Proctor and Gamble and Lilly both fit that definition. I already own PG in other accounts, but this is a first for my IRA. I have never owned LLY before. With the purchase of 1/4 of my target in LLY, this is my first buy back into Pharmaceuticals in over a decade. I now like the industry because this is the new era of personalized medicine. Dozens of exciting new drugs for the treatment of dire diseases such as cancer, AIDS, Parkinson’s, and Alzheimer’s are either on the market or are very close to regulatory approval. The industry has shifted its focus from blockbuster drugs (chemistry-based drugs) to specialized products, geared towards specific disorders. According to government estimates, American drug purchases may reach $497 billion by 2016, supported by a rapidly aging population, inflation, and the introduction of expensive new drugs. (Source: The Street)
Eli Lilly and Co pays a 5.13% annual yield. Based on its gross margin, operating margin, and net margin, LLY converts a larger percentage of its revenues to profits than most other companies in the Biotechnology & Drugs industry. Furthermore, the company is profitable with an operating margin of 23.41%.
LLY pays an annual dividend of $1.96 which, at its current stock price, produces a yield of 5.13%, above both the Biotechnology & Drugs industry average of 3.30% and the S&P 500 Index yield of 2.20%. This is even more impressive in that few companies in the Biotechnology & Drugs industry even pay a dividend.
P& G pays a 3.12% annual yield. PG is one of the more profitable companies in the Personal & Household Prods. industry with a net margin of 14.29%. Its net margin and operating margin are both among the strongest of any peer, while its gross margin is inline with the industry median.
PG pays an annual dividend of $2.10 and, at its current price, yields 3.21%, a level that is in-line with the Personal & Household Prods. industry average but above that of the S&P 500 which yields 2.20%. Additionally, this company is in the minority as most others in this industry do not pay a dividend.
The Street on LLY
We rate LILLY (ELI) & CO (LLY) a BUY. This is based on the convergence of positive investment measures,which should help this stock outperform the majority of stocks that we rate. The company’s strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.
The Street on PG
We rate PROCTER & GAMBLE CO (PG) a BUY. This is driven by some important positives, which we believeshould have a greater impact than any weaknesses, and should give investors a better performanceopportunity than most stocks we cover. The company’s strengths can be seen in multiple areas, such as itsrevenue growth, growth in earnings per share, good cash flow from operations, increase in stock price duringthe past year and increase in net income. We feel these strengths outweigh the fact that the company hashad generally poor debt management on most measures that we evaluated.