Not all dividends are created equal. At first glance a high dividend yield may look nice, but all too often it means a problem is lurking around the corner for a business. Looking at Teva’s 3% dividend yield in isolation only tells half of the story, which is why investors need to have an understanding of how the market perceives a company prior to buying a stock. We can do this by comparing a few financial multiples, like price to earnings, to its peers in the industry.
Up to this point, we’ve looked at Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s dividend in the past, and we’ve also seen how its stock is being perceived by the market today. However, the most important factor to consider when understanding a dividend’s future is where the company’s cash flow is heading. It’s hard to generate more cash without growing sales, so let’s take a look at what industry analysts are expecting for Teva’s revenue growth relative to peers this year.
As a leading generic pharmaceuticals company, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) usually benefits when top selling branded drugs lose patent protection. But the company also sells numerous branded drugs, and it’s facing a patent expiration in 2015 for Copaxone, which accounted for around 20% of sales in 2012.
Fewer generic drugs to copy, as well as Copaxone’s patent loss, will certainly hurt revenue growth over the next few years. Despite the sluggish growth outlook, given the company’s reasonable payout ratio today and the stability offered by its generic business, I think Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) will be able to maintain, and grow, its dividend slightly over the next few years.
The article Does Teva’s Dividend Have Room to Soar? originally appeared on Fool.com and is written by Brenton Flynn.
Brenton Flynn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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