Portfolio Update
The FiveTwenty portfolio received no dividends in the past week.
| Past Week Dividend | $0 |
| Current Quarter Dividend (Q3 2021) | $36.00 |
| LifeTime Dividend | $541.34 |
| Estimated Annual Dividend | $2,152.01 |
The capital allocation for the week of 07/18/2021 to 07/24/2021 will be used to establish a position in Bristol-Myers Squibb (NYSE: BMY).
BMY – Company Profile
Bristol-Myers Squibb (BMY) is an American multinational biopharmaceutical company. The company offer products in hematology, oncology, cardiovascular, and immunology therapeutic classes. It products include Revlimid, Eliquis, Opdivo, Orencia, Pomalyst/Imnovid, Sprycel, and Yervoy. Official Site | Wikipedia
| Dividend Streak | 14 years |
| Yield | 2.85% |
| Payout Ratio | 30.3%* (GAAP NA) |
| P/E | 10.4* (GAAP NA) |
* computed using TTM adjusted EPS of $6.46 as of Q1 2021
Financials
Does BMY have the financial means to sustain and raise its dividend going forward?
Over the last decade, BMY grew its revenue from $21.2 billion in 2011 to $42.5 billion in 2020. However, the growth was not consistent nor smooth. Between 2011 and 2014, the company saw its revenue decline to a low of $15.9 billion. The decline was driven by the loss of exclusivity of 2 leading drugs, Plavix and Avapro/Avalide, during FY 2012, which prompted the company to embark on a multi year reorganization, punctuated by a complete divestiture of its diabetes business in 2014. Between 2014 and 2019, BMY saw strong revenue growth going from $15.9 billion to $26.1 billion. Finally, in FY 2020 revenues jumped 63% to $42.5 billion primarily driven by the acquisition of Celgene.
Adjusted net earnings followed a similar trend to revenue. On the other hand, GAAP net earnings have fluctuated widely due to various non-cash and one time expenses related to acquisitions, contingent considerations, equity investments and others.
In the last 10 years, BMY’s EPS both on a GAAP and adjusted basis closely tracked the trends in the corresponding net earnings. However, from the low point in 2013 to 2019 (the last year before the Celgene acquisition) adjusted EPS grew from $1.82 to $4.67, a CAGR of 17.01%.
The average dividend per share growth rate was 3.20% per year in the past 10 years and 5.40% per year in the past 3 years. (per GuruFocus) However, with adjusted EPS growing at a much higher rate over the second half of the decade, BMY’s payout ration as a percentage of adjusted net earnings is done to mere 28.6% as of Q4 2020.
BMY in 2021 and beyond
After an FY 2020 in which the company saw no significant impact on operations from the COVID-19 pandemic, BMY had an uneventful Q1 2021 earnings report. Revenues grew 3% year-over-year to $11.1 billion. Adjusted EPS increase to $1.74 from $1.72 during the same period the previous year.
Looking ahead the company reaffirmed its adjusted EPS guidance of $7.35 – $7.55 for full year 2021.
Valuation
Are we paying too much for BMY at the current share price?
In the last 10 years, BMY’s P/E ratio saw a low of 4.6 and a high of 253, with a median value of 29.50. (per GuruFocus) The P/E ration on adjusted EPS during the same period saw values as high as 29.2 and as low as 9.48. The current TTM P/E ratio on adjusted EPS of 10.4 is very close to the bottom of the range.
The current share price of $67.30 is 1.8% above the 50-day moving average and 6.5% above the 200-day moving average. Additionally, the share price is at the top of the 52 week trading range.
BMY’s share price is back to its pre-pandemic value. However, on a P/E basis the company is still trading at a very attractive price.
Yield
How does the current dividend yield for BMY compare to historical values?
In the last 10 years, the dividend yield for BMY has been in a range of 1.99% to 5.11%, with a median of 2.91%. The current TTM yield of 2.85% is within shouting distance of the historical median.
Given the current yield is above the yield in our target entry criteria, we are content with establishing our opening position at
Thesis
Why are we adding BMY to the FiveTwenty portfolio?
BMY showed some great resilience dealing with the loss of exclusivity for its top selling product, Plavix, in 2012. The company absorbed the loss of $9+ billion in revenue in 3 short years and quickly return to robust growth. Furthermore, in later years it used significant acquisition to boost its revenues even further.
In addition, we believe that the the historically low payout ratio makes the dividend payout quite safe for year to come. Furthermore, I could lead to more rapid growth of the dividend in the near term as evidenced by the larger growth rate over the last 3 years.
Additional Research
- Bristol-Myers Squibb (BMY) – Large-Cap Pharma Dividend Growth – Dividend Power
- 5 Deep Value Dividend Stocks For Annual Portfolio Rebalancing – Sure Dividend
- Bristol-Myers Placed A Big Bet On Celgene’s Pipeline. Will It Pay Off For Investors? | The Motley Fool
Photo by Nastya Dulhiier on Unsplash
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