Novartis (NVS) offers slight dividend increase, but future is bright.

Novartis’ (NYSE:NVS) dividend was increased by 1%. Its overall yield is 3.80%.  The firm started paying a dividend in 1993.

Novartis AG (NYSE:NVS) is a large pharmaceutical firm based in Switzerland. Its shares trade on the NYSE as an American Depository Receipt, or ADR. The company was created by the merger of Sandoz AG and Ciba-Geigy AG in December 1996. It is primarily a pharmaceutical company, but also is a major producer of generic drugs through its Sandoz division. It offers eye care products through its Alcon division and also sells consumer and animal health products. Pharmaceutical products account for 55% of sales, generics for 16%, and eye care for 19%. The company was founded in 1895 and is headquartered in Basel, Switzerland.

Novartis has maintained a solid three-year growth rate of dividends of 4 percent. Novartis currently ranks 5th in yield within the large cap healthcare, major drug manufacturer category. The annual dividend for the March payment will be $2.75 versus the prior year rate of $2.72 per share. Novartis AG. is a member of our Top 100 Dividend Stock List (see below).

top-100

The dividend will be paid at the new higher rate on March 3, 2017, to shareholders of record at close of business on March 1, 2017. Novartis is currently priced at $73.34. Listed in the table below are the annual dividend payments since 2010.

Date Quarterly Dividend
3/3/2017 2.75
2/24/2016 2.72
3/2/2015 2.67
2/27/2014 2.76
2/26/2013 2.43
2/27/2012 2.41
2/24/2011 2.36
3/2/2010 1.94

Quantitative Analysis:

We examine Novartis upon our five key criteria, which include; 

Category Value Score
Dividend Yield 3.80% 71
Dividend Growth (3 to 7 year avg) 4.7% 307
Forward P/E 14.03 85
S&P Financial Rating AA- 40
Beta  0.90 100
Total Score   603

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2017 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
3.80% 4% 5.4% 21.65 3.34 2.55 4.40 2.56% 4.65%

Positives;

  • Novartis maintains an investment grade credit rating.
  • Novartis has maintained a three-year growth rate of dividends of 4 percent.
  • Novartis’ dividend yield is above that of the S&P 500 Index.
  • Novartis maintains a beta of 0.90, lower than the average company.
  • Novartis’ current dividend yield (3.80%) is above its five-year average of 3.66%.

Negative;

  • Novartis is trading slightly above its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

Novartis issued its earnings data on January 25th. The company reported $1.12 earnings per share for the quarter, topping the consensus estimate of $1.09 by $0.03. Revenues declined 2% to $12.3 billion and were marginally below the analyst estimates. Novartis’ three segments had mixed results.  The pharmaceutical division, or Innovative Medicines, maintained revenue of $8.3 billion, down 1% year over year.  Pricing pressure along with competition from generics had an impact.  Its key drug Gleevac was notably effected. Sales of Gleevec dropped 29 percent to $3.32 billion last year. Its newer drugs did very well. Gilenya’s revenue was up 12 percent to $3.11 billion. Cosentyx, launched in February 2015, also became a blockbuster medicine, with sales exceeding $1 billion for the first time. Entresto, another key element to Novartis’ future generated revenue of $170 million in 2016.

Sales at the Alcon division were $1.4 billion, flat year over year. Alcon has been a thorn for Novartis for several years. Cataract and refractive sales were pressured by competitors. Novartis announced on its conference call that the firm is considering alternatives including a spinoff or an initial public offering.  The company anticipates to provide more information on their internal review by year end 2017.  The business could bring in $25-$35 billion if sold.  The Sandoz division sales for generic drugs were $2.6 billion, up a better than expected 3% as volume growth was solid. Generic biopharmaceuticals sales surged nearly 30% year over year to $277 million.

For the full year, total revenue for Novartis was $48.5 billion, flat from 2015.   Earnings per share for the full year was $4.75, down twenty five cents from the previous year.  This was in line with expectations as the firm transitions from its major patent losses and focuses more upon new key drugs and biosimilars.  Free cash flow was very strong at $9.5 billion.  The firm also initiated a share buyback of $5 billion. Management indicated they are to execute buybacks this year.

Novartis’ new drugs and pipeline progress has been encouraging. Cosentyx continues to have accelerating growth. The company received EU approval for a label expansion of ophthalmology drug Lucentis. The drug is now approved to treat patients with visual impairment due to rare conditions causing choroidal neovascularization (CNV). The European Commission (EC) also approved Arzerra in combination with fludarabine and cyclophosphamide for the treatment of adult patients with relapsed chronic lymphocytic leukemia. Novartis got positive opinion from CHMP for Votubia as an adjunctive treatment for patients aged two years and older whose refractory partial-onset seizures, with or without secondary generalization, are associated with tuberous sclerosis complex (TSC).

Quite a few drugs/candidates received Priority Review status from the FDA during 2015/16. The FDA granted priority review to LEE011 (ribociclib) in combination with letrozole as first-line treatment for post-menopausal women with HR+/HER2– advanced or metastatic breast cancer. The application for the same was also accepted for review in the EU.  The FDA also granted Priority Review to Tafinlar + Mekinist combination therapy for the treatment of BRAF mutant non-small cell lung cancer (NSCLC) and PKC412 (midostaurin) for the treatment of newly diagnosed FLT3 mutation-positive acute myeloid leukemia and advanced systemic mastocytosis.

Novartis maintains a solid return on equity of 9%  At a price of $73.34, Novartis stock currently trades at a price/sales ratio 3.42. This is slightly above the long-term average due primarily to the revenue decline after the loss of top drugs Diovan and Gleevac.  It does trade at a forward price/earnings ratio of 14, below that of the market. I feel the bad news in Novartis is clearly reflected in the price of the shares. Novartis traded at $106.80 in 2015. Thus the shares have fallen 30% in just over a year. This is a substantial price reduction for a large blue chip pharmaceutical firm with a long history of producing stable earnings and dividends.

For a more detailed analysis of Novartis, please read our detailed October 2016 review of the company’s prospects.

Based on the firm’s higher than average dividend yield, investment grade rating,  and low beta, Novartis remains a top ranked firm within the pharma sector.  It thus continues to qualify as a member of our  Top 100 Dividend Stocks list.  

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Novartis AG. Dividend Yield Chart (Click to enlarge)

nvs

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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