Will the big carrot for pharma investors shrink? Deutsche Bank's Barbara Ryan thinks so. In a note to investors, the über-analyst predicts that Big Pharma's big dividends will soon be a thing of the past. That's because of the woes we all know are afflicting drugmakers: the looming patent cliff and thinner-than-we'd-hope pipelines.
Plus, pharma stocks aren't the top performers that they used to be, partly because of the aforementioned woes. That has shrunk P/E ratios, giving drugmakers less ability to finance acquisitions in-house. Ryan points to Pfizer, which halved its vaunted dividend to speed up repayment of the debt it would take on for the Wyeth buyout. As other pharmas leverage up, dividends will continue to fall, she predicts.
"Historically, pharma companies have had high dividend payout ratios owing to strong cash flows, long product life cycles, and underleveraged balance sheets," Ryan wrote (as quoted in the National Post).&\ "Today, things are far different; profit life cycles are shorter, new product development has been disappointing, and P/E's have fallen dramatically. Muchâ€needed acquisitions must now be funded with relatively lowâ€cost debt. With increased leverage, we expect payout ratios to fall into the 30's versus their historical midâ€40's." What do you think?
- read the National Post story