Gilead Sciences Raises Dividend by Double Digits

Gilead Sciences’ (NYSE:GILD) dividend was increased by a solid 11%. Its overall yield is now 3.08%. The company started paying a dividend in 2015.

Gilead is a large U.S. based biotechnology company. The health care company discovers and develop drugs products treat infectious diseases. Its product portfolio is concentrated in the HIV and hepatitis B and C arenas. With several acquisitions, the company also now has moved into cardiovascular, cancer and pulmonary. Gilead’s primary products include Truvada, Viread, Genvoya, Stribild, Harvonia and Sovaldi. The company is located in Foster City, California, and was founded in 1987.

Gilead initiated its dividend in 2015. It currently ranks first in dividend yield within the large cap health care, biotechnology category. The quarterly dividend for the March payment will be 52 cents versus the prior year rate of 47 cents per share. Gilead is not a member of our Top 100 Dividend Stocks. (See below.)

The dividend will be paid at the new higher rate on March 30 to shareholders of record at close of business on March 16. Gilead is currently priced at $67.55. Listed in the table below are the quarterly dividend payments since 2015.

Analysis of Gilead is based upon our five key criteria for the Top 100 list, which include:

Additional Information;

Final Analysis;

Positives

• Gilead’s dividend yield is above that of the Standard & Poor's 500 Index.
• Gilead maintains an investment grade rating of A.
• Gilead has maintained a two-year growth rate of dividends of 27.8%.
• Gilead is trading toward the bottom of its 10-year average price-sales (P/S) ratio.

Negatives

• Gilead has paid out a dividend for only the past two years.
• Gilead’s sales of its key products are rapidly declining.

Latest  earnings and overall analysis

Gilead issued its earnings data on Feb. 7. The company reported $2.64 earnings per share (EPS) for the quarter. Fourth-quarter net income dropped to $3.1 billion from $4.7 billion a year earlier. Fourth-quarter revenue from its primary hepatitis C drugs Sovaldi and Harvoni dropped by $1.5 billion, coming in at $3.2 billion. Unfortunately, Gilead’s fourth-quarter numbers demonstrated continued erosion in the company’s primary franchises. The surprise is that the company produced a positive earnings per share given that the company had such a large decline in product revenue while spending $1.2 billion on R&D in the fourth quarter, up substantially from the previous year.

The company reported 2016 full-year revenue of $30.4 billion, which was nearly 7% below the 2015 calendar year level. Full-year earnings per share for 2016 was $11.57, a drop of 8.2% from the previous year. For Gilead, it was simply fewer patients being initiated for treatments. The company indicated that about 230,000 U.S. patients utilized its hepatitis C drugs in 2016, below that of the previous year. But unfortunately, the company anticipates that it will drop further as 160,000 will start treatment in 2017. The biotech giant projected 2017 hepatitis C drug sales of $7.5 billion to $9 billion, about $4 billion lower than Wall Street expectations.

Gilead’s Sovaldi and Harvoni have had a large impact with cure rates above the 90 percentile. Pricing is also an issue for the company. It initially charged $1,000 per pill, but its average 2016 price for Harvoni was $15,000 per bottle of 28 pills. As much of the treatment is for people over age 65 and also the poor, its government rates are critical to its profitability. The company indicated within the Medicaid program its price per bottle (28 pills) was around $10,000. This does not take into consideration that added competition from AbbVie and Merck will come in the next couple of years, further reducing pricing power.

Gilead forecast 2017 sales of $15 billion to $15.5 billion for the rest of its product portfolio including HIV. Investors in Gilead are hoping for either an acquisition or that its large research and development budget will pay off soon. The company now has 28 clinical studies in the works, including 10 late-stage trials. The company does have newer products producing revenue including Epclusa. The biotech product for HCV brought in just over $1 billion for the last half of the year. Considering the drug was approved in June, those numbers are outstanding. The company also saw positive growth for other products. Fourth-quarter revenue for pulmonary drug Letairis was up 15% to $226 million while Ranexa revenue grew to $210 million, a 25% increase. Both will become blockbuster products.

Overall, Gilead is a unique story. Its revenue is in decline. But the revenue piece is large, at $24 billion projected for 2017. On its current path, revenue should decline each year by about 5% on conservative assumptions. That should allow the company time to develop replacement products. It maintains a cash hard of near $32 billion and should make a profit of over $10 billion next year due to very high margins. The company only paid out $2.5 billion to pay dividends, thus there is room for increases.

If the company can make a savvy acquisition or if a few of its plethora of new products pan out, Gilead will be a solid investment. The company maintains a very low price-earnings (P/E) ratio, solid A credit rating and yield over 3%. However, based upon the risk factors noted above and declining revenue, we think there are better high-yielding health care companies (Pfizer [PFE], Novartis [NVS] or GlaxoSmithKline [GSK]) out there for dividend investors.

Based on the company’s future revenue declines and relatively short dividend growth history, Gilead Sciences does not qualify as one of our Top 100 Dividend Stocks.

Disclosure: I have no position in Gilead.

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