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No. of Recommendations: 2
Merck Shares Are Cheap And Worth Buying Now

Merck and Company, Inc. (MRK) shares were hitting new 52-week highs not that long ago, but then the fear over a dividend tax increase and year end tax-loss selling helped to push the stock lower. This has created another buying opportunity, even though the stock has started to climb up from recent lows of around $40.

Merck is one of the world's largest manufacturers of vaccines, pharmaceuticals and other health products. Just as with most pharmaceutical companies, Merck has seen some patent expirations, but it has also continued to spend on the research and development required to find the next high-potential vaccine or blockbuster drug candidate. Vaccines could provide this company with solid growth potential and it already offers a wide range of products including: Proquad for measles, rubella and varicella, Gardasil for human pampilloma virus, Zostavax for zoster (shingles), and Afluria for influenza virus, which is timely now considering the current outbreak of influenza.

Merck shares look like an ideal buy for dividend income investors as it offers a yield of about 4%. This is attractive since the average stock in the S&P 500 Index (SPY) yields about half that, at around 2%. Merck's yield is also higher than what many bonds and other traditional savings options provide. Plus, Merck has recently been slowly but surely increasing the dividend and that trend could be poised to continue. For example, Merck's dividend was 38 cents per quarter in 2011, but it has risen to 43 cents per quarter, which is an increase of nearly 15% in just a couple of years.

Another important factor is that earnings easily cover the dividend payout by a wide ratio. For example, in the third quarter of 2012, Merck reported non-GAAP earnings of 95 cents per share. That means the dividend payout ratio is just around 35%, leaving the company with plenty of room to raise the dividend, especially as earnings grow.
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