Overview of Merck & Co., Inc. (MRK)

Merck & Co., Inc. (NYSE: MRK) is a global pharmaceutical leader known for blockbuster drugs like Keytruda and Gardasil. With a rich history of dividend growth, Merck has long been a staple for dividend-focused investors. Recently, the company has faced headwinds, causing a sharp decline in its share price. But is this a potential buying opportunity?

Key Metrics (As of February 15, 2025):

• Industry: Health Care – Pharmaceuticals
• Current Stock Price: $83.01
• Dividend Yield: 3.68%
• Dividend Growth Streak: 13 consecutive years
• Payout Ratio: 32.03%
• 5-Year Dividend Growth Rate: 6.96%
• ROA 5.12%
• P/E Ratio: 12.33
• Forward P/E: 8.46
• Projected EPS Growth (Next 5 Years): +11.97%

Is Merck (MRK) a buy or a stock to avoid?

With a low payout ratio (32.03%) and strong projected EPS growth (+11.97%), future dividend increases are highly sustainable. The stock’s valuation of P/E at 12.33 and forward P/E at 8.46 suggest the stock is undervalued relative to earnings potential. With a very low payout ratio at 32.03% the dividend is safe and company’s cash flow provides enough cash to sustain the dividend despite the recent challenges with Gardasil sales in China.

The ROA of 5.12% is typical for a large-cap pharmaceutical firm, balancing R&D investment with returns. This indicates a sustainable profitability that may continue in the near future despite the recent decline. The company paid and increase the dividend for 13 consecutive years.

Recent Developments and Challenges:

The stock declined by 38% since June 2024, primarily due to reduced Gardasil vaccine sales in China and halted shipments. Despite this, Merck remains optimistic about future demand recovery. In mid-2024, Merck observed a significant reduction in demand for Gardasil in China. This downturn was attributed to increased pressure on discretionary consumer spending and a government anti-corruption initiative, leading to decreased vaccine uptake. Consequently, Merck temporarily halted Gardasil shipments to China in February 2025 to manage excess inventory.

This decline prompted Merck to withdraw its previous projection of achieving $11 billion in annual Gardasil sales by 2030 causing the stock price to drop. However, the second largest cash generator, Keytruda, continues to drive revenue, supported by a robust drug pipeline.

Technical Indicators to Watch:

If buying Merck now is an opportunity, which I think it is, what the technical analysis tells us and what metrics to watch so we do not catch a falling knife? Here are some metrics to pay attention to:
 

Support: $82.18

Resistance: $92.08

A sustained move below $82.18 may signal further downside, while a move above $92.08 could indicate a reversal.
 

RSI: 23.15 (Oversold, potential for rebound)

An RSI below 30 indicates the stock is oversold, suggesting potential for a price reversal.
 

MACD: -3.62 (Watch for crossover as a bullish signal)

A negative MACD value suggests downward momentum. However, a potential bullish signal could emerge if the MACD line crosses above the signal line.
 

Technical Pressure: RSI at 23.15 (deeply oversold) and MACD signaling a possible reversal. Recent trading sessions have shown increased volume, suggesting heightened investor interest. This surge often precedes significant price movements and can indicate potential trend reversals. The technical indicators suggest that MRK is currently oversold, with potential for a reversal. However, the prevailing bearish trend and external challenges necessitate caution.

The chart above suggest the stock is now undervalued and it presents a good buying opportunity. But how can an investor buy a stock that sold almost 40% and sleep well? This is a forever question investors keep asking all the time. There is now a lot of fear as investors are dumping the stock. But look at it from the strength perspective. Is Merck a good high quality stock? The metrics above suggest that it is a very high quality stock. And as many value investors recommend: “buy undervalued stocks that everyone is selling out of fear and not rational thinking.” And here we see a lot of irrational overreaction. Do you want an example of a similar stock that was recently dumped out of fear? Well check Abbvie (ABBV). The stock was dumped so many times out of fear of Humira losing dominance due to the patent expiration, and look where is the stock price today. it is over 100% higher than it was 5 years ago! And all the despite the Humira fear!

Investment Strategy: Is MRK a Buy?

It is my opinion that Merck (MRK) is a good buying opportunity thanks to the recent selloff. So how to buy in?
 

Staggered Buying: Initiate partial positions and accumulate on confirmations. If you have let’s say $10k to invest, buy 30% of your overall position, then wait for the stock to move and if it starts moving in your direction, buy another 30% and later add 40%.

Monitor Indicators: Buy if RSI crosses above 30 and MACD confirms momentum. Look for RSI <30 (oversold). A rise above 30 after being oversold can signal a reversal.

Risk Protection: Set stop-loss near $78.

Final Thoughts:

Merck’s sell-off is likely driven by short-term concerns rather than structural weakness. With strong dividend sustainability and growth, solid earnings growth, and a promising pipeline, MRK fits well into a dividend growth strategy. I am also adding this stock to our Undervalued Dividend Stocks List.

Dear Investors,

Welcome to this edition of the Dividend Growth & Value Newsletter—your trusted source for identifying undervalued dividend stocks with strong growth potential while avoiding common dividend traps.

This month’s focus is on stocks yielding 3.5% or more, offering sustainable growth, and trading at attractive valuations. The following five picks stand out as solid dividend growers, all with manageable payout ratios, positive earnings growth, and stable financials.

Top 5 Undervalued Dividend Stocks for February 2025

1. UGI Corporation (UGI) – The Utility with a Growth Edge

• Industry: Utilities – Regulated Gas
• Dividend Yield: 5.4%
• Dividend Growth Streak: 37 consecutive years
• Payout Ratio: ~50% (Safe zone)
• P/E Ratio: 9.3 (Undervalued)
• Projected EPS Growth (Next 5 Years): +7% per year

Why It’s a Strong Pick:
UGI is an underrated dividend aristocrat operating in the regulated gas and propane sectors. While most utilities offer stability, UGI offers both stability and growth, thanks to its international expansion and diversification into renewables.

Potential Risks: UGI’s propane business is seasonal and depends on winter demand. However, its regulated utility division provides a stable cash flow buffer.

Opportunity: With a low P/E of 9.3, UGI is currently undervalued compared to its historical average (P/E ~15), making this a solid dividend growth opportunity.

2. Ford Motor Company (F) – A Cyclical Dividend Comeback Story

• Industry: Auto Manufacturing
• Dividend Yield: 5.6%
• Payout Ratio: ~60%
• P/E Ratio: 8.1
• Projected EPS Growth (Next 5 Years): +6.5% per year

Why It’s a Strong Pick:
Ford has rebuilt its dividend after slashing it during the pandemic, now offering a healthy 5.6% yield. The company is balancing traditional ICE vehicle sales with EV expansion, making it a well-positioned legacy automaker for the evolving market.

Potential Risks: EV margins remain thin, and economic downturns could hurt auto sales demand. However, Ford’s truck & fleet business provides a steady income stream, and its ICE division remains highly profitable.

Opportunity: Ford’s P/E of 8.1 is lower than the auto industry average (~12). As demand stabilizes, there is room for multiple expansion and continued dividend growth.

3. LyondellBasell Industries (LYB) – The High-Yield Chemical Giant

• Industry: Specialty Chemicals
• Dividend Yield: 6.5%
• Dividend Growth Streak: 13 years
• Payout Ratio: ~70% (Still reasonable for industry)
• P/E Ratio: 7.0 (Highly undervalued)
• Projected EPS Growth (Next 5 Years): +5.8% per year

Why It’s a Strong Pick:
LyondellBasell is one of the world’s largest plastics, chemicals, and refining companies, supplying materials to industries that will always need them—automotive, construction, packaging, and medical.

Potential Risks: Chemical companies are cyclical, and demand for materials can fluctuate during recessions. However, LYB has one of the most shareholder-friendly policies, consistently increasing dividends even through downturns.

Opportunity: With a 6.5% yield and a P/E of just 7, LYB is significantly undervalued compared to its peers (~11-13 P/E). Insiders recently bought shares, signaling management confidence.

4. Whirlpool Corporation (WHR) – A High-Yield Value Play

• Industry: Consumer Appliances
• Dividend Yield: 6.4%
• Dividend Growth Streak: 10+ years
• Payout Ratio: ~65%
• P/E Ratio: 9.2
• Projected EPS Growth (Next 5 Years): +6.2% per year

Why It’s a Strong Pick:
Whirlpool is a dominant global appliance manufacturer, with well-known brands like KitchenAid, Maytag, and Amana. Even during slow economic periods, appliances remain essential purchases.

Potential Risks: Appliance sales are cyclical, and higher interest rates could reduce home purchases, indirectly affecting demand. However, Whirlpool’s reliability as a dividend payer makes it a strong defensive stock.

Opportunity: WHR’s low P/E of 9.2 suggests deep value, especially considering its consistent dividend growth.

5. Chevron Corporation (CVX) – The Oil Giant with a Safe Dividend

• Industry: Oil & Gas Integrated
• Dividend Yield: 5.0%
• Dividend Growth Streak: 37+ years
• Payout Ratio: ~60%
• P/E Ratio: 10.1
• Projected EPS Growth (Next 5 Years): +5.5% per year

Why It’s a Strong Pick:
Chevron is a dividend aristocrat that has raised payouts through oil booms and crashes. Despite the push for renewables, oil demand remains strong, and Chevron’s diverse operations (refining, upstream/downstream) ensure stability.

Potential Risks: Oil prices are volatile, and government policies could affect fossil fuel investments. However, Chevron has low debt, a rock-solid balance sheet, and the ability to generate cash flow in any environment.

Opportunity: At just 10.1 P/E, Chevron is trading below its historical average (~13 P/E). This is a chance to buy a blue-chip dividend payer at a discount.

Final Thoughts: How to Use These Picks

Each of these high-yield dividend stocks presents a unique opportunity based on value, growth, and payout sustainability. Whether you prefer the stability of utilities (UGI), the comeback story (Ford), the cash cow of oil (Chevron), or the industrial players (LYB & Whirlpool), these stocks offer a balance of yield and growth potential.

Happy investing!