Pharmaceutical giant $Merck(MRK)$ just announced an increase of almost 6% in its quarterly dividend from 69 cents to 73 cents, raising the annualized dividend to $2.92 per share, and bringing smiles to its long-term shareholders like @DiAngel and me. The stock has returned 43% year to date or 47% returns including dividends, compared with almost 15% fall in the S&P 500 market index during the same period.
I like the defensive nature of pharmaceutical business, given the aging worldwide population and the globally growing awareness of healthcare. Even in the face of rising inflation, a patient is more likely to forgo discretionary spendings on holidays and other entertainment, than to sacrifice his or her medical treatments.
While it may take years of development and clinical trials before a new drug can be approved and marketed, a blockbuster drug may generate very lucrative profit for the pharmaceutical company. For example, Merck's cancer immunotherapy drug Keytruda that helps immune cells kill cancer cells more effectively generates about $20 billion sales for the company and has fueled its growth for years.
The huge barriers to entry for the pharmaceutical industry, such as intellectual properties and patents, research, development and clinical trial challenges and stringent regulatory approvals, have served to shield the incumbents like Merck from new startups.
Hence, I continue to like the pharmaceutical industry in general as a defensive play in this inflationary environment and Merck in particular for its track record of rewarding its long-term shareholders well.
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