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Dividend Investing Stocks (Archived)

TEVA - Teva Pharmaceuticals Industries, Ltd.

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the October 2014 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

Teva Pharmaceuticals Industries, Ltd.

Teva Pharmaceuticals Industries, Ltd. NASDAQ:TEVA is a large-cap pharmaceuticals company and its stock trades around $130 million per day. TEVA was founded in 1901 and has an established history of paying dividends.

The key fundamentals for TEVA are shown below.

Growth fundamentals for TEVA

YearRevenueEPS ROEDividendBook ValueEmployees
200332701.24 21%0.205.9010900
200447900.50 6%0.228.6013800
200552501.66 18%0.279.3014600
200684000.65 5%0.3314.1026600
200794002.42 14%0.4217.0027900
2008110000.73 4%0.5318.3038300
2009138002.23 10%0.6421.7035000
2010161003.73 15%0.7824.5039600
2011183003.12 12%0.9525.1045700
2012203002.26 9%1.0826.6045900

The fundamental data above shows that TEVA has broadly increased its revenue, earnings, book value and employees over the last decade. The current earnings are down from the 2010 earnings peak. While the earnings do vary from year to year there is still a general upwards trend. TEVA broadly qualifies as a growth stock since the earnings are showing a general increase - not every year needs to be greater than the previous year. Since TEVA pays a dividend this gives investors the best of both worlds - a generally growing stock that pays a dividend. Also TEVAs dividend yield is quite good - which is currently about 3%.

Fundamental Analysis for TEVA:

The return on equity is moderate and averages around 10%. The profit margin (profit to income ratio) varies somewhat and ranges from under 10% to over 20%.

The current ratio (current assets to current liabilities) ranges from 1.1 to 1.9 which indicates that TEVA has an adequate amount of working capital.

The debt ratio (long-term debt to tangible assets) averages around 1.5 which means that TEVA carries a fair amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) averages around 50% which means that TEVAs total debt is 50% of its total assets.

The revenue for the 2013 fiscal year is projected to grow at 11% (based on the five year revenue growth trend). The earnings growth for the 2013 fiscal year is projected to grow at 13% (based on the five year earnings growth trend).

The forward PE ratio is around 10 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 0.8.

The current business valuation would drop to around $25 if TEVAs earnings growth stops (with a 2.7% ten year Treasury bond yield).

TEVAs book value is around $26 and if TEVA does run into financial problems in the future this gives an idea of how far the stock price could drop.

The bankruptcy risk can be calculated using the Z-score. TEVAs Z-score is 2.4 which means KO is a moderately low bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 25-Sep-2013 and this allows the reader to see how the stock performed over the next year.

TEVA had its 2013/06 quarterly results released prior to 25-Sep-2013 and this information is available for the analysis. The 2013 Q2 earnings showed a decline of 50% over the same quarter from a year ago (2012 Q2). The 2013-Q2 dividend is $0.32 for the quarter which is a 28% increase over the same quarter from a year ago (2012 Q2).

Overall the fundamentals are quite good with this large-cap stock which has a reliable history of paying a regular dividend. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in TEVA on the 25-Sep-2013 would give a purchase price of around $38.

The stock price performance is shown below in Chart 2. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 2. Stock chart with earnings for TEVA

weekly Chart TEVA

As shown in Chart 2. above, TEVA gained around 40% over the next year including dividends. TEVAs 2013 annual earnings declined by 35% over the 2012 fiscal year. TEVAs 2013 dividends were $1.33 which is a 23% increase over the 2012 fiscal year

Stock Analysis for Finance Students and Investors