Is AstraZeneca plc A Super Income Stock?


What a difference a year makes!

This time last year, the market was not particularly excited about the prospects for AstraZeneca (LSE: AZN) (NYSE: AZN.US). Not only were its earnings set to decline over the next few years, the company seemed to be doing little to arrest the decline in sales resulting from the patent expiry of a number of key drugs.

Fast forward one year and shares are 32% higher (versus a gain of 2.7% for the FTSE 100) and investors are optimistic about management’s ability to steer the company through the choppy waters of generic competition.

However, after the share price rise, is AstraZeneca still a super income stock?

A Strong Yield

Despite shares having a great year, they still yield an impressive 4.3%. This is considerably higher than the FTSE 100 yield of 3.5% and shows that AstraZeneca remains a highly attractive income play in the short run. However, with the company facing patent expiry (and subsequent generic competition) on a number of its key blockbuster drugs, dividends per share are forecast to flat line over the next two years. While this is disappointing, it’s a prudent move by management to ensure the long-term success of the company is not compromised.

A Well-Covered Dividend

Indeed, even with earnings per share (EPS) forecast to drop by 15% this year and by 2% in 2015, AstraZeneca’s dividend remains well-covered at over 1.5 times (meaning dividends can be paid 1.5 times with 2015’s net profit). This shows that, while the company is being generous with the proportion of earnings it pays out, it is ensuring that dividends remain at a sensible level, which is good news for the long-term health of the company (and for shareholders).


So, AstraZeneca offers a relatively attractive yield and looks to be on a solid path to recovery. Indeed, despite market sentiment improving (and the share price rising) it still looks inexpensive, relative to the wider market. AstraZeneca currently trades on a price to earnings (P/E) ratio of 13.2, which is slightly below that of the FTSE 100, which has a P/E of 13.5.

A Super Income Stock

Certainly, AstraZeneca’s P/E ratio will tick up over the next two years (as EPS falls) but when the quality of the company, its medium to long term prospects and its yield are all taken into account, it still looks good value. That’s why AstraZeneca remains a super income stock — especially for investors with a longer term outlook.

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Peter owns shares in AstraZeneca.