is shire's dividend safe?

Download Is Shire's Dividend Safe?

Post on 23-Aug-2014




0 download

Embed Size (px)


Shire Plc (NYSE: SHPG) is one of the globe's biggest drug companies. It's a major player in ADHD and rare disease and the company has been rumored as a take-over target by both Allergan and AbbVie (NYSE: ABBV). Shire's focus has remained squarely on growth, rather than dividends. However, the company has a solid track record of double digit dividend payout increases over the past decade. Given that Shire has already lost patent protection for its ADHD drug Adderall and will lose patent protection on another important ADHD drug later this year, investors are right to wonder if that dividend increase streak can continue. In the following slideshow you'll learn whether I think Shire's dividend is safe and see how Shire's dividend matches up to suitor AbbVie and industry peer Novartis (NYSE: NVS).


  • Is Shires Dividend Safe?
  • Is Shires dividend safe? ~$5 billion in annual sales Up 9% year-over-year in 2013. Products sold in 50 countries. Market leadership in ADHD Adderal XR Intuniv Vyvanse Growing rare disease product line. However, Shire faces patent risk. Adderall lost patent protection in 2012 Sales declined 12% year-over-year to $375 million. Intuniv loses patent protection in December 2014. Intuniv sales totaled $335 million in 2013. Shire is one of the largest global drug manufacturers.
  • Patent Risk Lets consider the patent threat. Shires ADHD product lineup generated $1.9 billion in sales in 2013, including $375 million from Adderall XR (currently facing generic competition) and $335 million for Intuniv, which goes off-patent in December. Aggressive pricing is helping stabilize the rate of decline for Adderall XR sales. Sales of Vyvanse are offsetting risk to Adderall. While Adderal and Intuniv sales are at risk, Vyvanse is more important to Shire given that its market share totaled 17% exiting 2013. Shires revenue has climbed despite patent expiration.
  • Reasons for dividend optimism Fast growing therapies in the first quarter: Vyvanse (ADHD): Sales grew 18% YoY to $351 million in Q1. Firazyr (hereditary angioedema): Sales up 80% to $75 million in Q1. Lialda (ulcerative colitis): Sales up 28% to $129 million. Elaprase (Hunter syndrome): Sales up 13% to $129 million in Q1. Cinryze (Hereditary Angioedema): Generated $86 million from Jan. 24th to Mar. 31st. Acquired in buyout of ViroPharma. A rich platform of products and a solid pipeline of potential new therapies. Pipeline opportunity: Goal to double neuroscience sales by 2010. Opportunity to grow market share in adult market. Adderall IR and XR account for 58% market share of adults. Vyvanse market share is 15%. SHP465: long-lasting adult ADHD drug. Potential launch in early 2015. Vyvanse label expansion to include binge-eating. Filing pending.
  • Reasons for dividend optimism A rich platform of products and a solid pipeline of potential new therapies. Sales and earnings growth opportunity: Total product sales forecast to grow mid to high teens percentages this year. EPS growth forecast to grow mid to high twenty percent range. Revenue and EPS analyst estimates reflect future growth opportunity.
  • Cash dividend payout ratio Shires focus has been on reinvesting profit into growth rather than dividends. As a result, Shires cash dividend payout ratio, which measures the percent of cash used to pay dividends after capex and preferred dividend payments, is only 6.2%, far below potential suitor AbbVie (49%) and industry peer Novartis (75%). That suggests substantial room may exist for future dividend increases.
  • Dividend growth Shire doesnt pay a lot in dividends, but it is steadily increasing its payout. The board has increased the dividend by 15% annually since 2008.
  • Current yield Shires dividend yield is anemic at just 0.26%, suggesting dividend investors may want to consider other dividend stocks, like Novartis, instead. However, Shire has demonstrated a commitment to growing its dividend and the companys shareholder friendly free cash flow grew from $113 million last year to $231 million this year. That suggests the company has plenty of dividend flexibility.
  • . The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. Thats beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investors portfolio. To see our free report on these stocks, just click here now.