AmerisourceBergen (ABC); A reliable dividend payer (+7%) with a compelling valuation.

AmerisourceBergen’s (NYSE:ABC) dividend was increased by 7% with an overall yield below that of the Standard & Poor’s 500 Index at 1.85%.

AmerisourceBergen was created by the merger of AmeriSource Health and Bergen Brunswig. The company is a full-service wholesale distributor of pharmaceutical products. The firm operates in two segments: Pharmaceutical Distribution and PharMerica. PharMerica is its international pharmacy unit. The firm is the second-largest pharmaceutical wholesaler by revenue. Its primary customers are Walgreens (WBA) and Express Scripts (ESRX).

AmerisourceBergen currently ranks third in yield within the large-cap drug wholesaler category. It has maintained a solid three-year growth rate of dividends of 16.8%.

The quarterly dividend for the December payment will be 36.5 cents versus the prior-year rate of 34 cents per share. The dividend will be paid at the new higher rate on Dec. 5 to shareholders of record at close of business on Nov. 21. AmerisourceBergen is priced at $81.33. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
Nov. 21 36.5 cents
Aug. 18 34 cents
May 19 34 cents
Feb. 18 34 cents
Nov. 12, 2015 34 cents
Aug. 13, 2015 29 cents
May 14, 2015 29 cents
Feb. 12, 2015 29 cents
Nov. 13, 2014 29 cents
Aug. 14, 2014 23.5 cents
May 15, 2014 23.5 cents
Feb. 13, 2014 23.5 cents
Nov. 14, 2013 23.5 cents
Aug. 15, 2013 21 cents
May 16, 2013 21 cents
Feb. 13, 2013 21 cents
Nov. 15, 2012 21 cents
Aug. 17, 2012 13 cents
May 17, 2012 13 cents
Feb. 15, 2012 13 cents
Nov. 17, 2011 13 cents
Aug. 18, 2011 11.5 cents
May 20, 2011 11.5 cents
Feb. 16, 2011 10 cents
Nov. 18, 2010 10 cents
Aug. 20, 2010 8 cents
May 20, 2010 8 cents
Feb. 10, 2010 8 cents
  • Analysis of AmerisourceBergen is based upon our five key criteria, which include:
Category Value Score
Dividend Yield 1.85% 310
Dividend Growth (3- to 6-year average) 21.8% 75
Forward P/E 12.41 61
S&P Financial Rating A- 120
Beta 0.85 75
Total Score 641

Additional Information on price-sales (P/S) ratio and historical yield:

% Yield 3-Year Div. Growth Rate 6-Year Div. Growth Rate SPS 2016 P/S Ratio 10-Year P/S Low 10-Year P/S High 5-Year Lowest Yield % 5-Year Max Yield %
1.88% 16.8% 26.9% 667.5 0.12 0.07 0.21 0.92% 1.93%

Positives

  • AmerisourceBergen maintains a three-year dividend growth rate of 16.8%.
  • AmerisourceBergen maintains a credit rating of A-. This is investment grade.
  • AmerisourceBergen’s forward price-earnings (P/E) ratio is just over 12, below that of the market.
  • AmerisourceBergen is trading at its 10-year average P/S range.
  • AmerisourceBergen has paid out a dividend consecutively for the past 15 years.
  • AmerisourceBergen’s current dividend yield (1.88%) is above its five-year average historical dividend yield of 1.45%.
  • AmerisourceBergen maintains a beta of 0.85, lower than the average company.

Negative

  • AmerisourceBergen’s dividend yield is below that of the S&P 500 Index.

Latest Earnings & Overall Analysis:

In addition to its 7% increase in dividend payments, AmerisourceBergen also released earnings for the quarter. The firm earned $1.30 per share for the fourth quarter, besting analyst estimates of 8 cents. Earnings were up 11% from last year’s fourth-quarter result of $1.17.

On the revenue front, sales rose by 6% year-over-year to $37.6 billion in the reported quarter. But these numbers on sales were slightly below most estimates on Wall Street. In breaking down the numbers, the Pharmaceutical Distribution segment was up 5% while the specialty drug wholesale group performed more admirably with revenues rising over 15% in the quarter. Guidance by management was poor for the company, joining other firms within the industry that struggled during the third quarter including McKesson (MCK). Management expects fiscal 2017 revenue to rise by 6.5% to 8%.

The company also expects earnings per share next year to be $5.63 to $5.88. This was well below most analyst estimates. This is several cents below the prior year while second-quarter 2017 earnings per share will be flat with the year-ago period. Much of the uncertainty is based on the likely repeal of Obamacare. The wholesale drug companies industry might well lose out on revenue as nearly 20 million people could lose insurance coverage in the next year if the mandate is scrapped.

The guidance was effected by a weak forecast for brand drug inflation. Contract pricing on the 2017 renewals of CPA and Kaiser could be tenuous. Guidance for flat earnings per share also relates to the significant headwinds influencing generic pricing. But these headwinds should be 12-month events. Management was confident that growth would return in the second half of 2017. Also on the plus side, the firm did announce a $1 billion buyback repurchase plan.

Despite the poor 2017 guidance and generic headwinds, the firm stands out as a leader in its industry with consistent strong dividend increases. Based on the firm’s high relative dividend yield versus its own history, low forward P/E, high credit rating and low beta, AmerisourceBergen remains a solid selection within the health care sector and a member of our Top 100 Dividend Stocks list. If you want to find out if a stock is in our model portfolio please subscribe to our monthly newsletter.  

AmerisourceBergen Corp. Dividend Yield Chart (Click to enlarge)

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Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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