Gilead Sciences Inc.: Why Investors Shouldn’t Ignore GILD Stock
November 25, 2016
GILD Stock Should Be Taken Seriously by Dividend Investors
Gilead Sciences, Inc.(NASDAQ:GILD) stock is one that should be considered by income investors.
The name of the company may not be familiar to income investors, and I don’t blame you for that. The reason is that GILD stock is a newer addition to the list of dividend-paying companies.
GILD stock will be paying the seventh dividend in the company’s history on December 29, 2016. This is why the name may not be relevant to dividend investors.
Before I explain further, the reason I’m discussing this company is that GILD stock is considered a growth stock which could potentially add tremendous amounts of wealth to the bottom line of investors, and one that provides income.
A company in the biopharmaceutical sector that focuses on discovery, development, and commercialization of medicines, Gilead is in the early days of its dividend stock, and many investors are unaware of its potential.
Now, going back to the company’s dividend and how shareholders are being rewarded.
Rewarding Shareholders
In Gilead’s short history of paying a dividend, only one increase has taken place: a hike of 9.3% between the fourth and fifth dividends. With such a short history of paying a dividend, this is a great sign for dividend growth investors. When a company initializes and increases a dividend, it signals to investors that long-term cash flows are steady and strong.
With shares trading currently at $75.30, the current yield is 2.5%. In February, the board of directors approved a $12.0-billion share repurchase program that would begin once the previous $15.0-buyback program was complete.
Share repurchases are a tax-efficient way of returning money back to shareholders, who own a larger percentage of the company following the buybacks. Gilead is capable of buying back shares thanks to the $31.6 billion in cash and cash equivalents in its bank account. (Source: “Gilead Sciences Announces Third Quarter 2016 Financial Results,” Gilead Sciences, Inc., November 1, 2016.)
Analyst Overview
With all these positive benefits for shareholders, analysts have taken notice of GILD stock. The average price target is $96.59, which would be an expected capital gain of 28.2% from the current price of $75.30. (Source: “Gilead Sciences Inc.,” MarketWatch, last accessed November 24,2016)
The stock trading at its current valuation is the main contributing factor. The current price-earnings (P/E) ratio of GILD stock is 6.96, which is dirt-cheap compared to the S&P 500 healthcare index’s P/E ratio of 20.9. Therefore, the shares are trading at a third of what the overall index is trading at.
For GILD stock to hit analysts’ target price growth, the bottom line which is coming down the pipeline is necessary. In the most recent quarter, the European Commission authorized marketing of “Epclusa,” which reduces the risk of Hepatitis C.
In the third quarter, Epclusa contributed $40.0 million to the balance sheet from European sales, though it didn’t go on sale in the region until midway through the quarter. In the U.S., where it was available the entire quarter, the treatment made $593.0 million. (Source: Gilead Sciences, Inc., November 1, 2016, op cit.)
Final Thoughts on GILD Stock
GILD stock is one of my favorite biopharmaceutical stocks. For patient dividend investors, this could be a great stock to consider owning in order to participate in the upside of new treatments hitting the market. With Gilead on board to reward shareholders, I wouldn’t be surprised to see more dividend hikes and share repurchases.
