Recent Buy

buyHere we go.

This is the final stock I purchased with the cash that was sent my way when Reynolds American, Inc. (RAI) acquired Lorillard Inc., upon which I received some stock in the former company and cash after relinquishing my holdings in the latter company.

I will note that this is a rather speculative play, in my view. This company doesn’t have the lengthy dividend growth history that I almost exclusively look for – the company actually just recently announced its first-ever dividend. But I think the valuation and promise are compelling enough to initiate a small position here and see where things go. I’m excited.

I purchased 10 shares of Gilead Sciences, Inc. (GILD) on 6/16/15 for $118.89 per share.

Overview

Gilead Sciences, Inc. is a biopharmaceutical company that discovers, develops, and commercializes a variety of medicines designed to transform and simplify care for people with life-threatening diseases.

The company currently primarily focuses on HIV and hepatitis C treatments, with operations in more than 30 countries.

Harvoni and Sovaldi, hepatitis C treatments, generated approximately 50% of fiscal year 2014 product sales. The three single-tablet regimens for HIV, which are Atripla, Stribild, and Complera, generated another 24%.

Geographically, FY 2014 revenue broke down as such: United States, 73%; Europe, 22%; and other countries, 5%.

No one customer accounted for more than 25% of the company’s revenue.

Fundamentals

GILD sports some of the most unique fundamentals I’ve ever seen, especially in regards to the growth and the speed at which the company has increased revenue and profit.

Revenue was $2.028 billion in FY 2005. The company grew that to $24.890 billion in FY 2014. That’s a compound annual growth rate of 32.13%. Insane.

However, it’s important to keep in mind that while revenue growth has been pretty impressive and steadily increasing over the last decade, there was substantial growth from FY 2013 to FY 2014 – the top line more than doubled YOY. And almost all of that growth was related to the release and sales of Harvoni and Sovaldi. As such, the company is currently heavily dependent on the continued success of these drugs.

Earnings per share is up from $0.43 to $7.35 over this 10-year period, which is a CAGR of 37.08%.

I don’t anticipate this kind of growth to continue for the firm looking out over decades to come, especially since the base continues to become larger, but there also appears no reason why the growth will dramatically contract.

S&P Capital IQ expects EPS will grow at a compound annual rate of 20% over the next three years, which, if it materializes, is still incredibly stellar.

This seems to be playing out in their recent results: Q1 2015 saw the company record revenue that was up 51.9% YOY and EPS that improved by 107.5%. They also increased guidance with the results, noting that full-year revenue should finish at between $28 billion and $29 billion. That’s a rather large increase in guidance, coming just a couple months after prior guidance. Things are moving in the right direction here.

Now, I already mentioned GILD doesn’t have a lengthy dividend growth track record. This is one of the very few times I’m investing in a company without at least five years of dividend growth. As such, for me, it’s a somewhat speculative play. No indictment on the quality of the business, but rather just noting that it doesn’t sport the type of quality dividend metrics I almost always look for.

But the company announced an initial quarterly dividend of $0.43 in February. There is no precedence of dividend growth nor is there any evidence that the dividend will grow. So, again, this is speculation on my part that the company will not only continue to pay a dividend for the foreseeable future, but also grow it regularly.

Along with the announcement of the dividend, that press release also gave notice that the company approved the repurchase of $15 billion of the company’s common stock. For perspective, that’s more than 8% of the company’s current market cap.

The stock yields 1.45% on my purchase price, which doesn’t offer much income. So this is a play for plenty of dividend growth as well as total return over the long haul.

With a payout ratio of just 19.5%, there’s a ton of room here for the dividend to grow, if the company decides to increase the payout.

The company’s balance sheet is really solid. The long-term debt/equity ratio is 0.76 and their interest coverage ratio is north of 36. In addition, as of Q1 2015, the company has more cash than long-term debt – about $14 billion.

Profitability is nothing short of phenomenal. Over the last five years, they’ve averaged net margin of 34.54% and return on equity of 48.86%. Sky-high numbers here that are excellent in both absolute and relative terms.

Qualitative Aspects

The company’s primary competitive advantages lie in the drugs it discovers, develops, markets, and patents.

As noted above, they are experiencing tremendous success in the treatment of both HIV and hepatitis C. They serve approximately 85% of the treated HIV patients in the US. That’s a massive share of the market. And their STR HIV medicines are patent protected for years to come. The company notes that its STRs positively affect tolerability and convenience, and more than 70% of newly-diagnosed HIV patients in the US are prescribed a GILD STR. This speaks to their reputation for efficacy.

Management acquired Pharmasset Inc. in 2011, which helped GILD develop some of its incredibly successful and profitable hepatitis C drugs. The $11 billion they paid is now obviously considered a steal, as Sovaldi and Harvoni are generating annual sales that, combined, exceed that number. Their market share in the domestic hepatitis C market also exceeds 80%. And the patent protection in this arena also indicates that the company is set up for a long runway for growth – Sovaldi is under patent protection until 2029 and Harvoni, 2030.

Harvoni is a revolutionary treatment for HCV because once-daily therapy over the course of 8-24 weeks results in cure rates of 94-99%. Their HCV drugs continue to roll out in new countries across the world, providing for even greater potential over the near and long term. The World Health Organization estimates:

…about 3% of the world’s population has been infected with HCV and that there are more than 170 million chronic carriers who are at risk of developing liver cirrhosis and/or liver cancer.

So there’s obviously a huge pool of potential customers still yet ahead for GILD. However, keep in mind that their HCV drugs are a cure for the most part, rather than a lifelong treatment. And that’s why their treatment courses range from $84,000 to almost $95,000, before discounts.

What this success, huge market share, and long runways for growth provide is a robust business model that allows for incredible profit margins, solid growth, and the opportunity for the company to also focus its R&D on new treatments. GILD is using that opportunity to develop treatments in the arenas of oncology and cardiovascular and respiratory diseases.

Risks

There are a number of risks to be considered here, which further speaks to my belief that this investment is somewhat speculative.

Primarily, there is competition and patent concerns. Although the majority of GILD’s blockbuster drugs in HIV and HCV are protected by patent for years to come, there is always concern that a competitor could develop drugs that are better and/or cheaper. In addition, the company is facing a lot of pressure from foreign governments to offer treatments at extremely affordable prices. Compulsory licensing is an omnipresent threat in many developing countries where cheap medicine is in high demand.

Another risk involves the very nature of their industry: Operating in the healthcare field means there is constant risk of litigation and regulation.

Gilead has had to offer heavy discounts on some of their products, especially their HCV treatments. Their high cost has received some backlash from government agencies and pharmacy benefit managers, which has led to pricing pressure.

The company also must maintain a robust pipeline of new drugs to replace lost revenue when other key medicines go off patent and face increasing competition from branded and generic drugs alike. GILD spent approximately $2.9 billion in R&D last year, much of which went to clinical studies.

A unique risk here is that their HCV medicines are cures, rather than lifelong treatments. As patients are cured, they no longer have need to use GILD’s medicines.

Lastly, there is integration and acquisition risk. The company’s rather large cash pile will likely be used for an acquisition at some point over the foreseeable future. Pharmasset Inc. was an excellent use of capital, but it’ll be difficult to replicate that success.

Valuation

The stock’s P/E ratio is 13.51, which compares extremely favorably to the five-year average P/E ratio of 20.9. In addition, that’s well below that of the broader market and the biopharmaceutical industry. It’s possible that the company’s incredible growth hasn’t been fully priced into the stock yet, which could also mean that there is doubt as to whether that growth will last much longer.

I valued shares using a two-stage dividend discount model analysis with a 10% discount rate. I used an initial dividend growth rate of 20% for the first ten years. I then factored in a 7% terminal growth rate. I think that growth rate is certainly reasonable and fair considering the historical underlying profit growth and the potential moving forward. However, the absence of a history of dividend raises means it’s difficult to nail down a growth rate with tremendous accuracy. The DDM analysis gives me a fair value of $175.08.

GILD appears severely undervalued to me. The P/E ratio is similar or even lower to other stocks that are growing at rates one-fourth as fast as GILD is. Even if growth were to permanently drop by 50%, this appears to still be a solid value here. And I don’t think that drop is going to happen.

Conclusion

I noted that this stock was a long shot when going over stocks that were on my watch list for June. But the capital infusion I reluctantly received from the LO acquisition meant the opportunity was there to pick up GILD at what I feel is an extremely compelling long-term value.

Again, it’s a spec play, especially for a die-hard dividend growth investor like myself. But every 20-year or 30-year dividend growth streak has to start somewhere. And I’m willing to bet that GILD turns into the next Champion. They certainly have the fundamentals, growth, track record, and willingness to return value to shareholders.

You almost never see a high-quality stock that’s growing so fast also simultaneously valued so low. Apple Inc. (AAPL) is similar in this regard, but even it’s not this cheap. And its growth potential probably pales next to GILD just due to the size differential.

GILD is probably on the outer rim of my circle of competence. Understanding biopharmaceuticals is a lot less easy than, say, chocolate or cheeseburgers (and a lot less delicious). I may not understand the research, chemical compounds, or science behind it all, but I do understand that humanity has a lot of chronic diseases that need cures and medicines, and GILD is in a great position to help and capitalize on that. Medicine at its fundamental core isn’t a particularly complicated concept.

This purchase adds $17.20 to my annual dividend income, based on the current $0.43 quarterly dividend.

I’m going to include current valuation opinions from other analysts below, which I use to concentrate my reasonable valuation estimate:

Morningstar rates GILD as a 3/5 star valuation, with a fair value estimate of $114.00.

S&P Capital IQ rates GILD as a 5/5 star “strong buy”, with a fair value calculation of $195.20.

I’ll update my Freedom Fund in early July to reflect this recent purchase.

Full Disclosure: Long RAI, GILD, and AAPL.

Have any thoughts on GILD? Think it’s wildly undervalued? How speculative is it? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Edit: Corrected grammar. 

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98 Comments

  1. Nice buy Jason. Some people love GILD, but I honestly don’t know enough about it. I am optimistic we’re going to get some solid opportunities in the coming days if this Greek/Chinese/Interest Rate circus keeps up. Here’s to better opportunities in Pepsico, Johnson & Johnson, BHP Biliton, and Union Pacific. Walmart may even jump on my list. Hoping to put some real money to work buddy
    -Bryan

  2. today was brutual but I am trying to change my mindset and I bought some solid companies today, UPS, W, TD. How was you feeling today? My biggest loss day to date, but I have exceeded my dividend payout from goal of $1000k this last year ($776) and now it states at $2433. Thats for the enjoyment to stop hiding during these down days and buy low.

  3. Bryan,

    I’ve never really followed GILD much, but I was really impressed with the numbers after taking a good look at the company and the stock. It’s not often you can buy that kind of growth for that cheap.

    I’m also hoping for better opportunities here in the near term. May have another really solid July for cash flow, so every drop helps! 🙂

    Thanks for dropping by!

    Best regards.

  4. Michele,

    Keep in mind that today’s drop was really very minor in comparison to what’s possible for the stock market. So if today made you a little queasy, you might want to really think about your stock exposure and whether you’re okay with that volatility.

    I was actually hoping for a much larger drop, and wouldn’t be surprised to see one here any day now. The value of my portfolio matters very little. It’s really the passive income that matters; cheaper stocks feature higher yields, which means I’m that much closer to my goals.

    Let’s hope for some real fireworks. 🙂

    Best wishes.

  5. Great buy, Jason. Good P/E ratio and excelent pay out, but for me too low yield.
    with the downs and good change $ -euro, today I purchase more XOM at 83,2. I think it’s a good price for long term.
    Still waiting for more bargain…cross finger!

    Cheers from Spain

  6. Javier,

    I’m crossing my fingers as well. Maybe the power of both our finger crossing will work! 🙂

    I hear you on the yield. There are a number of stocks, like GILD, that just won’t work for many investors. But seeing as how I’m going to be living off of dividend income for potentially 50 years, I have to consider the growth (future) in addition to the yield (now).

    Glad to be a fellow XOM shareholder.

    Cheers!

  7. Purchases just keep coming! What a wonderful month! Similarly to your thinking, I have a small position in GILD only because of its track record (or lack thereof) of dividends. But the fundamentals are quite impressive!

    As far as seeing the market drop and being elated, I too had to mentally change my thinking. When I first started to invest, I’d get sad when I see it drop. I kept on reading your blog and you kept hammering how you’d welcome a correction. I started to slowly understand what you were saying but it finally hit me when I did an excel spreadsheet exercise where I kept capital appreciation/share price static but dividend yield increasing YOY (I used 6.5% increase per year). Seeing the difference in dividend income was amazing! So days like today, I had a smile on my face! Looking forward to more volatility so we can see real sales!

  8. Nice purchase, Jason. GILD has caught my eye too while Ive been researching AMGN – but eventually went with AMGN as it had the dividend record. GILD has now started paying dividends, and Im sure those will grow aggressively over the years to come. A future dividend contender and challenger for sure.

    Best
    R2R

  9. Hey Jason
    GILD is a great stock to add to your portfolio. I have thought about adding it to my portfolio. GILD has alot of cash to buy another company so it can generate even more profits. If they want too. also GILD can increase the dividend, and stock buy back. GILD management has been good to share holders and I think they will continue to reward share holders. I see the company growing its stock price over time, and increasing the dividend. So this will be a winner for you and all the stock holders. This is a long term winner stock great buy Jason. take care

  10. This is a great company to own. I have it on my watch list. If market pull further then I will add this stock. I think GILD can achieve high dividend growth for a long time.

  11. Peter,

    Indeed. The fundamentals here are incredible. Right up there with some of the best I’ve seen across larger companies, like V.

    Glad you’ve experienced that paradigm shift. It takes time to really understand the benefits of market/individual stock pullbacks/corrections as it pertains to accumulating assets and achieving your long-term goals. But I’ve been doing my best to hammer those points home and show how that works/what that looks like in real life with some of my purchases after big dips.

    I was smiling today as well, though I was expecting a lot more. I was expecting to actually make one last purchase this month, which would have put me in the territory of dangerously low cash on hand. But it wasn’t meant to be. I’m happy just waiting until later this week unless tomorrow brings about another 2% or 3% drop across the board. Otherwise, I’m waiting on some cash to come my way by the end of the week.

    Thanks for the support!

    Best regards.

  12. R2R,

    AMGN is another fine company in this space. They’re focusing on very different areas, which is great from the perspective of diversification. Wouldn’t mind AMGN in the portfolio at some point as well. GILD just seemed to sport superior numbers across the board, plus the better valuation. But AMGN has that great dividend growth record for them. Both really strong companies.

    I suspect we’ll be fellow shareholders in one or both at some point. 🙂

    Cheers!

  13. michael,

    It’ll definitely be interesting to see what they do with that growing cash pile. Even with the dividend, buyback, and spending, they’re going to continue to pile it up. But I’d rather see them stay patient and pick out the next great acquisition. Something they can bolt on like Pharmasset.

    Appreciate the thoughts and perspective. It’s a little speculative compared to what I normally get into, but I think I have the room for it. We’ll see. 🙂

    Take care!

  14. AJ,

    I first started watching it about six weeks ago, and it’s just been rocketing ever since. Wish I would have just pulled the trigger after I initially took a look at the numbers. But I don’t like to rush into things. And it’ll likely matter little or not at all whether I bought GILD at $119 or $110 in 10 or 20 years.

    But let’s hope the market turns depressive about GILD’s prospects. 🙂

    Best wishes.

  15. vince,

    Awesome stuff! A little cash back to help fund the next acquisition. And the snowball continues to roll. 🙂

    Glad to be a fellow shareholder here.

    Cheers!

  16. LOMD,

    We’ll see how it goes. But the fundamentals just don’t get much better than what we see here. If they can grow even half as fast over the next 10 years as they’ve grown over the past 10, I’ll be a very, very happy shareholder. 🙂

    Thanks for dropping by!

    Best regards.

  17. GILD is sporting some impressive numbers, the future looks bright and that’s a good reason why so many investors are flocking to the stock right now. Your approaching 60 stocks now DM, do you have a number that you think you’ll be comfortable with in the end ? It’s hard for me to put a solid number on limiting my positions especially as new opportunities present themselves but at some point I know I’ll have to limit things. Thx

    CD

  18. Nice job snatching shares of GILD, I am jealous =). That’s a solid company with great prospects ahead.

    I thought of you today as I saw the markets tumbling because I knew you would be salivating at the new buying opportunities. These are instances where folks with a long term view snatch shares of great companies.

    Keep on trucking man!

  19. You may have seen this video from Ray Dalio, but it’s simple & clear and I thought some of your fans might find this link of use. It gives some context to the macroeconomic forces playing out among our friends across the pond as they begin the deleveraging process (and our own “great deleveraging 100 year cycle”)

    Some food for thought as we all go about building our respective portfolios.

    http://www.youtube.com/watch?v=PHe0bXAIuk0

  20. I was eyeing GILD in the 90s, but decided to pass at the time. Too bad I’ll have to pay up now!

    I think it’s unavoidable to allocate some capital to the large cap health space. Companies like PFE/GILD/MRK go in business cycles with their products, but that’s just how the game goes. So long as they manage capital reasonably, they will spin off a ton of cash so long as it doesn’t end up squandered on a bunch of acquisitions and internal R&D.

    I’ve been eyeing several large pharma names for a while. None are a steal at the moment with good yields, but health is just something you need some allocation toward. I’ll be adding somewhere in the next few months if I have some decent ideas and no other compelling choices.

    Hopefully we stop seeing all this crazy bullishness and find the Dow back around 17k. Still a bit elevated, but down to earth and only a another 5% down from where we are today. In the interim, several sectors have already pulled back substantially, so I may just have to play around with financials, energy, and industrials for a bit longer.

  21. Captain,

    Yeah, the fundamentals are really incredible. You don’t run into numbers like this everyday, that’s for sure.

    As far as a target number of companies, I don’t really have a number in mind. Like I’ve mentioned before, scaling isn’t difficult. I don’t find it particularly more time consuming to run a portfolio of 60 stocks over, say, 20. Just a few more emails in the morning from Seeking Alpha. And I always find it funny that some people think it’s appropriate to only go long 20 or 30 stocks, but then will in the same breath recommend just buying the market because “you can’t beat it”. I guess they’re forgetting that you’re going long 500+ stocks in that case. I wonder if they keep up on all 500 stocks… People are funny.

    Cheers!

  22. Spoonman,

    I was actually disappointed with today. I kept coming across doomsday articles… the sky is falling, the sky is falling. I woke up today and, in fact, the sky hadn’t fallen. Darn it! 🙂

    But, seriously, I hope more pain is ahead. I’ll be replenishing the cash flow here over the next couple days after June’s big run. So I’d love to see things drop by another 5% or more.

    Hope all is well over there. And I hope you’re having a great time up in Canada. You’re living the dream, my friend!

    Best regards.

  23. dzogen,

    Thanks for sharing that. I think it’s important to understand how the general economy works in the basic sense of knowing how businesses conduct business, but I think it’s otherwise a general waste of time to think about macroeconomics on an ongoing basis, especially in terms of trying to look at the numbers and predict anything.

    “I’ve always said if you spend 13 minutes a year on economics, you’ve wasted 10 minutes.” – Peter Lynch.

    Take care!

  24. Ravi,

    I remember passing up V when it was in the $90s (pre-split). And I paid up in the low $200s. Sometimes you pay up for quality, though I don’t think GILD is particularly expensive here. The metrics are really skewed here, however, due to the rapid and explosive nature of their growth. But even at half this level, this stock is a bargain. Recent guidance seems to indicate they’re not slowing down all that much, so it’s really interesting.

    We’ll see what we get with the market. I was expecting some type of major pullback today. A 2% drop from near all-time highs isn’t exactly all that exciting. But I just continue to average in on quality and value as I go. TRV, UNP, and WPC are all cheaper now than they were a month ago, so I’m very happy about that. I’ll probably just continue to bulk up on those names for the foreseeable future. OHI as well.

    Best regards!

  25. Awesome purchases this month Jason. You’re on a roll and just hustling it Up!! I love it. You’ve come a long way and I’m happy for your accomplishment my friend. You’re living the awesome dream. Keep it up and thank you for sharing your thorough analysis as always. Much Respect bud. Cheers to us!

  26. DH,

    Thanks so much, man. Always appreciate the support and enthusiasm.

    This journey is so wonderful. I’m almost amazed that so many people are passing up so many easy opportunities to build wealth, income, and security. There is so much opportunity out there and I’m just so grateful and fortunate that the me of five years ago embarked on this grand journey. It’s been just a ton of fun and gets better every day.

    We’re doing amazing things individually, but the community we’ve built is even more amazing. I think we’re making a real difference.

    Cheers!

  27. Wow Jason! Just when I thought you might be done, you share yet another Recent Buy for the month of June. What an active month for you this past month. Way to keep adding to that income stream my friend. Must admit that GILD hasn’t really come on my radar but will certainly take a look at it after your post.

    Thanks for sharing. AFFJ

  28. AFFJ,

    Financial freedom won’t escape my grasp, that’s for sure. Keeping that snowball rolling at maximum velocity and reinvesting as fast as those dividends come in. 🙂

    Take a look at GILD. It won’t suit everyone due to the low yield and lack of dividend growth record. And I view it as somewhat speculative due to a variety of concerns. But it’s no penny stock and the company is extremely, extremely healthy and robust. A lot to like here.

    Thanks for stopping by!

    Best wishes.

  29. Well one more day in June to go… one more buy??? I guess I’ll find out soon enough. Nice GILD buy though I would like a longer dividend history before I buy into any company for my long term portfolio but there’s no denying that GILD for lack of a better term has been ‘hot.’ I do like the health sector a lot but for now will look at JNJ and the health REITs. Let’s see what Greece will do to the markets tomorrow.

  30. Good buy! Lots of chatter that another drop is still to come, so those who missed an opportunity here – don’t despair. I am an older investor. Started young, but didn’t put in much until later. Yet, because I focused on dividend stocks my portfolio has increased exponentially since the Great Recession. Doesn’t matter what age, for the most part we are living longer. If you have even a 5 – 10 year window before retirement, it’s even more important to load up on dividend payers for some of your post-working years income. GILD is a good buy…..hoping it goes down a bit more. LOL! Looking to load up on more OHI, too. Thanks for sharing your journey!

  31. Love the diversification into a clear growth stock recently. Hope it pays off for you in the long run. They look like a fantastic company at the moment so hopefully a few more of their drugs in the pipeline come to fruition as well.

    Great purchase.
    ADD

  32. Jason,
    I bought into GILD at about $100 per share. There are risks, as you pointed out, but GILD rates Wide Moat and Exemplary Stewardship by Morningstar. Investing in companies when they become dividend payers has been very profitable on a historical basis. All things considered, the risk-reward ratio is as good as I could find in this market. Similar to when I bought AAPL 4 years ago.

    Who needs Cedar Park? Looks like the market may be on a roller coaster ride. Greek tragedy? Maybe, but summer time tends to be choppy. Anything in particular you are hoping to see on sale? I would put CL, COST, KO, MMM, NKE, SBUX, TROW, XOM on my list. They are the other Morningstar Wide Moat and Exemplary Stewardship stocks that I own (or in Nike’s case, want to own). I probably have enough KO, SBUX, and XOM, so CL, COST, MMM, and TROW top my wish list.
    Enjoy the ride!
    Keith

  33. CL, COST, MMM, NKE, and TROW top my wish list. Can’t forget NKE. Would put all of my free cash in if it hit $80 per share.

  34. Just curious Jason, how did your 2-stage DDM produce $175? Using a 2 stage H model, I get the following:

    Vo = /

    With H = 5
    Gl = 7%
    Gs = 20%
    r = 10%

    So,

    Vo = / .03 = $98.60

  35. My formula didn’t show up for some reason:

    Vo = (Divo x (1+Gl) + H x (Gs – Gl) x Divo ) / (Gs – Gl)

    So

    V0 = (1.72 x 1.07 + 5 x .13 x 1.72) / .03

  36. DM,

    Nice pick up, one that I plan on purchasing early next week after payday. Its been on my radar since it was in the 60’s and now that it pays a dividend it has become even more enticing.

    Morningstar has it rated as a Wide-moat company with Exemplary shareholder stewardship, an A+ in my book especially considering the recently initiated dividend.

    Best of luck with the purchase.

    Regards,
    Dividend Odyssey

  37. I added AMGN and GILD to my portfolio last month.

    Btw, what do you think about dividend stocks when the interest rate starts to increase ?

  38. I’m surprised to see you add a speculative play to your portfolio. I saw your purchase on twitter and awaited the “Recent Buy” write up to see your rationale. I guess it makes sense its growing fast but the company only recently initiated a dividend and without any history of raising dividends I’m surprised to see it in your portfolio.

    I hope it works out as I love your blog but this doesn’t really seem to fit the mold of your prior investments or prior articles talking about building a portfolio for financial independence.

    Maybe another big pharma firm will buy them out and we (your readers) can get another month of a bunch of purchases with the cash proceeds.

    Best of luck

  39. Hi Jason

    Considering GILD is such a big company already, the growth is really amazing. I was wondering if there is room for SBUX in your portfolio? Coffee is pretty easy to understand so it would fit your KISS strategy. Yield is low but if they can keep up with the nice dividend growth it could be a fantastic investment. V is another wonderful company I think often. Would like to see that 20% correction to get some V and SBUX to my portfolio. Looking forward to july and all the articles still to come.

  40. Jason,

    There is nothing I can add to this board other than ‘damn son!’ I am just amazed at the roll you’ve been on, and its cool to see.

    – Gremlin

  41. I consider GILD to be a fourth stage, getting ready to run, type of stock. Maybe not a dividend growth factory immediately, as they have some recent new competition from AbbVie, but fantastic margins and huge potential. No dividend growth history and in a volatile industry? Don’t get me wrong, I think this is a great buy and I’ve been eying it too, but this one is arguably getting out of the DGI wheelhouse…so…

    …this purchase begs the question…why haven’t you bought BRK.B? I consider it to be one of the greatest “dividend” growth stocks of all time, with the added benefit that you don’t have to pay 15-20% on the dividends, they get automatically dripped by a brilliant investor, and you went to his party in Omaha!

    I think BRK is going to be like Phillip Morris, or Abbot Labs, where *sometime* in the future, you’ll see one, none, or all of the following:

    The stock portfolio is spun out to investors.
    They’ll start a dividend.
    They’ll pay a massive one time dividend.
    They’ll spin off other parts of the company to shareholders.

    If you’re willing to take a risk on thinks like GILD, I’m just curious why you haven’t pulled the trigger on some good ol’ fashioned BRK 🙂

  42. Jason-I cant gainsay this purchase BUT it does deviate from your a priori metrics and hence underminbes the disciplienb any retail long term investor needs to excel. This purchase violates your dividend focus, and makes your portfolio less coherent, more speculative. We all need soemone whispering in our ear as we ride our chairiot and assume we are smarter than the next fool…we usually are not…we can, however, be more focused, disciplined and less emotional than the herd. Looking foirward, At a minimumI would I woudl identify a priori what a objective measures a stick would need to violate your dividend history requirements, then the decision is less emotional and siutational.

  43. GILD is definitely a darling of the biotech industry. I don’t directly own them, but I indirectly own them through HGH and HQL (two GREAT healthcare closed-end mutual funds that pay growing dividends) and the T Rowe Price Health Sciences Fund (in my Roth IRA). GILD used to be the top holding in all three funds, and is now the 2nd or 3rd highest holding. Their stock performance has been off the charts for the past 10+ years.

    Their dividend yield is too low for me to buy directly, but I’m sure glad they’re a big part of my mutual fund holdings. Great buy if you’re okay with the low yield.

  44. DH,

    Looks like the market is holding up pretty well today. That’s why I don’t try to time this stuff. Was yesterday it? Wasn’t it? Will it drop another 5% tomorrow? Won’t it? It’s all a big waste of time. But I do see a few stocks that I’m interested in loading up on down a bit again, so I’m very happy about that. 🙂

    We’ll see how it goes with GILD, but I don’t blame you at all for the lack of interest on it. It’s funny to call a company with a market cap of $175 billion “speculative”, but, as a dividend growth investor, it just doesn’t have that dividend growth track record.

    Thanks for stopping by!

    Cheers.

  45. PelGirl,

    I’m with you all the way. The key is to not focus so much on the day-to-day movements of stocks or the market, but rather just consistently save as much money as you can and invest it in the highest-quality dividend growth stocks you can find at any given moment that are trading for a fair price or better. Then just reinvest the dividends, keep saving and investing, and wealth will come your way. I’ve proven that it’s really not that hard. The hard part is starting and then staying consistent and persistent. You have to really want it.

    But I’m hoping GILD (and a whole bunch of other stocks) is cheaper here over the coming months. I don’t plan to make GILD a very large position, though. But a cheaper GILD means that $15 billion buyback program is that much more effective. 🙂

    Best regards!

  46. ADD,

    Thanks!

    Yeah, this is really more of a growth play than anything else, though it could very well turn into a great dividend growth stock. It’ll just really depend on where management goes with that, but I’m hopeful.

    It’ll be interesting to see where it goes. Similar investments in V and DIS have thus far turned out pretty well.

    Best regards!

  47. Jason,

    This is a company I have been closely watching for several months…tremendous potential, also higher risk. Do you plan on averaging down on UNP during this market pullback? I have been considering it, but I also don’t like the disappearance of coal. Hopefully other transports increasing will offset this decline

    Guy

  48. KeithX,

    Nice buy there at $100. I should have jumped on quicker, but I always like to take my time and really look at the numbers. Should have bought right away, though. I could tell that there was something really great happening there. But the yield and lack of dividend history gives me pause.

    Yeah, I wish this roller coaster was more exciting. I was hoping to see another 2%+ drop today, but perhaps it’ll be a long ride rather than an exciting ride. 🙂

    I still like most of the stocks I’ve already been buying lately. TROW is fantastic. CL and MMM are both stocks I regret not buying years ago. SBUX is still expensive, though I’m thinking of just paying up for the quality and potential there. UNP, TRV, WPC, and OHI will all likely see some capital from me over the coming month or two. I may even average down on UNP one more time this month, but that would put my cash in a precarious position for a couple days. We’ll see.

    Happy shopping over there!!! 🙂

    Cheers.

  49. Jason or shall we call you Mr. Shopper? I don’t know if you have more fun buying a stock or getting the dividends!
    But, I enjoy reading and following your thought patterns as you go about purchasing stocks. Your writings has help me change my mind on stocks and investing! Thank You!!! I have a question and you have probably answered it somewhere and I may have missed it. My question is this, why do you not purchase some on the REITs which pay a dividend of over 10% or so? since you like dividends so well, what is wrong with high dividends?
    Please keep up the good work and keep writing!!!!

  50. Dan,

    Not sure of the shorthand. I use a spreadsheet for it. I can’t find a good two-stage calculator online. But that sounds quite low to me. I used more conservative numbers for Apple recently and got a much higher number than that.

    Nonetheless, you can also compare that to what Morningstar and S&P Capital IQ came up with. I place the most weight on my own number, but I also like to blend the three together and see where that comes out. I think the stock is undervalued here however you slice it.

    Cheers!

  51. joel,

    Thank you. Really appreciate it.

    Glad you’re enjoying the blog. I do my best to create high-quality content and inspire. Freedom is out there waiting for us. 🙂

    Best regards.

  52. Adam,

    Trying my best to just save as much as possible and continue rolling that capital into wonderful businesses. It’s a system that definitely works. 🙂

    As far as the stock market goes, I have no idea. And neither does anyone else. I’d need a crystal ball to answer that question. The sooner you accept that predicting the market is impossible, the sooner you’ll be able to sleep well at night.

    Best regards!

  53. DO,

    Yeah, I imagine that dividend opened the stock up to a whole new group of investors, including us. The fundamentals are about as impressive as it gets. You just don’t run into numbers like this everyday, especially when we’re talking about a fairly large company. And what’s really wonderful is that the runway is still quite long with the patent protection. They’ll likely continue to face licensing headwinds in developing markets, but they’re an extremely profitable enterprise. Even growing at half this level would mean the stock is pretty attractive.

    Hope it stays nice and cheap for you! 🙂

    Best wishes.

  54. Sam,

    Buffett has said over and over again that he doesn’t pay any attention to macroeconomics. I’m in the same boat. Seems to be a policy that’s worked out pretty well for him, so it’s good enough for me. That said, I’m hoping investors everywhere start dumping high-quality dividend growth stocks when rates rise. The cheaper, the better. 🙂

    Take care.

  55. Luke,

    Yeah, it’s definitely a speculative play considering the usual suspects I buy. But consider as well that my portfolio is already loaded up with the likes of KO, AFL, JNJ, etc. My universe of stocks that I’m interested in buying shrinks over time. So that might be a different situation than your own.

    I remember someone mentioning the same thing when I bought V – that it doesn’t really fit the portfolio. But a wonderful business is a wonderful business (and V definitely qualifies as wonderful). Keep in mind as well that every 30-year dividend growth track record has to start somewhere. The problem is that it’s extremely difficult sussing out who’s going to go on that epic run when they’re just starting the race. So I could very well be wrong here. But I’m betting that I’m not.

    And, yes, a buyout is highly unlikely. A merger, maybe. But that would take a pretty large firm. I find it more likely that GILD will continue to be the acquirer. I’d rather see GILD continue to operate independently and make a ton of money for decades to come, sending me my rightful share in the process. We’ll see.

    But just because I’m buying GILD (or any other stock) doesn’t mean you should, too. You have to find what works for you and your goals. But I’m balancing income needs over the short term along with the very long term.

    Cheers!

  56. GILD,

    Yeah, SBUX is likely to be one of those last low-yielding stocks that I buy. Love the business model. I regret that I didn’t buy in a while ago. So many stocks, though. I just don’t have enough money to buy them all concurrently. And it’s funny that I’m still missing so many great stocks even though the portfolio is sitting on 60+ positions. That goes to show you why I’m not artificially/arbitrarily limiting the number of stocks. Still a lot of great businesses out there that I don’t own a slice of. But that’ll change in due time.

    SBUX is awfully expensive right now, though. It’s really on the very, very upper edge of what I’d consider paying. And I’d really be probably overpaying, hoping that the future growth makes up for it. I doubt there’s really any margin of safety there, but you also probably don’t need much of one with the type of company we’re talking about.

    Best wishes!

  57. Gremlin,

    Thanks, bud. Really appreciate it. Didn’t plan on going crazy this month, but the LO acquisition put more capital in my pocket. And there are a lot of stocks out there to buy. 🙂

    Cheers!

  58. Jason,

    Biotech companies are one of the field that I am interesting in. I will look for some fund of actions rather than only one company, will minimize the risks.

    Cheers, RA50

  59. JJ,

    Good question there.

    First, Buffett is unfortunately not immortal. Todd and Ted seem to be great at allocating capital. But those are huge shoes to fill. Will they? I have no idea.

    Second, there is a great collection of businesses there. But I’ve been building my own nice collection of businesses. Berkshire makes a lot of money from insurance and railroads. Arguably, UNP is a better company than BNSF. And I find companies like TRV, AFL, and CB to be all high-quality insurance companies. Berkshire just allows you to buy them all under one roof, like a fund.

    Third, there’s a world of difference between paying a dividend and not paying a dividend. Since I plan on living solely off of my dividend income, BRK would be “dead weight” in my portfolio for as long as they don’t pay a dividend. And that could very well be forever. Even if GILD decides to keep the quarterly dividend static forever (a proposition I find highly unlikely with their growth and management’s clear path to returning value to shareholders), it’s still something. It’s still income I can spend. It’s just a different corporate culture when looking at a dividend and no dividend. And Berkshire is adamantly opposed to paying one. That’s the culture. Will that disappears when Buffett is no longer running BRK? Again, nobody knows.

    But every share of Berkshire I don’t buy means one more share available for you, and at a cheaper price. 🙂

    Take care.

  60. JD,

    Appreciate the perspective there.

    Again, it’s a somewhat speculative play. Keep in mind, though, that this company has a market cap of $175 billion. So you could just as well argue that, say, AMNF (one of my other holdings) is far more speculative with their market cap of $71 million. Depends on how you think about the situation. But, as a dividend growth investor, the lack of dividend growth history makes it speculative. However, one also has to wonder if buying KO when it’s growing 1/3 as fast as GILD at a valuation that’s twice as high isn’t more speculative? Depends on your perspective there.

    But the great thing is that it’s a big market of stocks out there. I bought GILD. But you can very well purchase something totally different. 🙂

    Best regards!

  61. EWB,

    Agreed. That yield is low, though I’ve had some great success in terms of dividend growth and total returns with stocks at that 2% mark or lower. In the end, it all comes down to the quality and growth of the company. It’s just that you usually have to pay up for a company growing like this. Very unusual to see a stock like this down here. But I’m excited to see how it turns out. It’ll be really interesting to look back on it in five or so years and see how it turned out. 🙂

    Glad to be a fellow (indirect) shareholder!

    Cheers.

  62. DD,

    Nice! Glad to be along for the ride with you. I can only wish we had more opportunities to buy stocks that are growing at rates well into the double digits at P/E ratios well below 15.

    Best regards.

  63. Guy,

    I’m absolutely going to be averaging down on UNP. It’ll likely be one of the very first stocks I buy in July. Hopefully, within the next day or two as soon as my cash pile is replenished. A fantastic business with incredible built-in competitive advantages. All aboard! 🙂

    Best wishes.

  64. Nut501,

    Glad you’re enjoying the content, inspiration, journey, and methodology. I’m happy to share and help! 🙂

    As far as REITs, I love REITs. But it’s just like any other business model. I have to make sure it’s somewhat easy to understand, I see solid fundamentals, and the quality appears high. Keep in mind that higher yield generally equates to higher risk. And I’m not a fan of mREITs, which are usually what offer those high yields (along with falling stock prices and slashed dividends). But if you know of any high-quality eREITs that pay out 10%+ yields and are trading for an attractive valuation right now, pass them along. I’ll be more than happy to take a look and possibly pick up some shares.

    Take care.

  65. RA50,

    It’s an exciting field for sure. A lot of changing technology, but really exciting. The fact that they’re curing diseases now is really fantastic and amazing. Who knows what’s next. What I do know is that there are a lot of diseases out there, which means a ton of opportunity.

    We’ll see how it goes!

    Cheers.

  66. Definitely check out HQH and HQL, two closed-end mutual funds (traded like a stock) with rising dividends. Both focus in healthcare biotech stocks. See dividend history for HQH here:

    http://www.nasdaq.com/symbol/hqh/dividend-history

    Two of my favorite holdings I own. Double advantage of high, rising dividends and price performance. Celgene (CELG), Gilead (GILD) and Actavis (AGN) are their three top holdings.

  67. EWB,

    Is it just me, or is that dividend history super lumpy? It was really high, then way down, then static for a while, and now growing again. The high yield is nice, but that’s not totally unapproachable among those stocks that are also growing their payouts regularly and routinely.

    The total returns are solid there, but you would have been much, much better off just owning those stocks individually.

    Cheers!

  68. So I think we may see some more pain in as this plays out over the next couple of weeks. We have rallies Greece both pro and against the current proposals, I’m sure whenever either decision is made we’ll either kick the can down the road or Greece will leave the European Union. If they exit you may see some widespread dips as it sets precedent for other fragile European economies to leave the Union. If they stay we may just be revisiting this issue in another six months. Either way we’re probably in for quite the ride in the next year or two.

  69. DD,

    We’ll see. The market’s short-term pain is my long-term gain. 🙂

    I honestly couldn’t care less what they do with Greece. I think it’s an inevitability that they exit the eurozone, however. I remember this year at the BRK meeting Munger mentioning how unwise the eurozone is in the first place, comparing it to forming a business partnership with your drunken brother-in-law. Can’t share resources like that. It’s hard for married couples to share money. Imagine how difficult it is for completely different countries to do that. Doesn’t really make sense.

    I keep in mind as well that Greece’s economy is smaller than the metro Boston area’s economy. But the media loves to blow things up.

    Nonetheless, I’ll just stick to the long-term plan. Cheaper stocks would make that plan even easier, though.

    Best regards!

  70. Jason you are right, but the dividend has been consistently growing since November of 2011. Plus the current yield is over 7%, and the price performance has been awesome. It’s a great way to cash in on the current biotech boom without the risk of guessing right on a single stock. I previously looked at individiual high-growth biotech stocks and the vast majority didn’t pay a dividend. For the ones that do, the yield is extremely low.

    For me, investing in HQH and HQL are better ways to get the growth of the biotech industry while still receiving a high-yield, growing income stream. I found these two on a stock screener two years ago, and it has paid off for me. Worth a solid look for anyone who’s open to investing in closed-end mutual funds.

  71. Jason,

    Quick couple of dumb questions.

    You say the following about understanding biopharmaceuticals-

    GILD is probably on the outer rim of my circle of competence. Understanding biopharmaceuticals is a lot less easy than, say, chocolate or cheeseburgers (and a lot less delicious). I may not understand the research, chemical compounds, or science behind it all, but I do understand that humanity has a lot of chronic diseases that need cures and medicines, and GILD is in a great position to help and capitalize on that.

    As opposed to looking at the history of a stock’s performance, how would understanding the business inside and out help you to determine if a stock is good or bad going forward? I’ve heard this repeated a lot, but I’m interested in an explanation, even if it’s an obvious one, from you. Is it just that understanding the business will help you determine how long they’ll stick around, or if there are some obvious road bumps ahead given some other impact from the industry?

    Also, what’s the calculation for annual dividend payouts?

    You said you purchased 10 shares and that it would add $17.20 to your annual dividend income based on the $0.43 quarterly dividend. Is it just ( 10 * $0.43 ) * 4?

    Thanks for always humoring my monkey brain!

    FM

  72. FI Monkey,

    I’d have a look at these articles:

    https://www.dividendmantra.com/2015/02/keep-it-simple/

    https://www.dividendmantra.com/2015/02/keep-it-simple-part-2/

    https://www.dividendmantra.com/2014/08/think-like-an-owner/

    https://www.dividendmantra.com/2014/09/think-like-an-owner-part-2/

    I’d also watch this video:

    http://www.youtube.com/watch?v=Lxypq_qIw7M

    In the end, it comes down to knowing what you own. If a stock falls by 10% and you have no idea why or what’s going on with business operations, how will you know whether or not it’s a good time to buy more or not? If you own shares in an mREIT and the stock falls by 10% on the back of an announcement that some collateralized mortgage obligations went sideways, what does that mean? Where do you go? What are all the ins and outs of CMOs?

    It’s not, however, about knowing every iota of a business. And some businesses are naturally easier to understand than others. But you should have at least a basic understanding about how a business makes money, how they’ll continue to make money, and what their products and/or services are all about.

    As far as the dividend is concerned, that’s right. The annual dividend is currently $1.72 per share. So 10 shares will spit out $17.20 in annual dividend income.

    Hope that helps! I’d definitely recommend reading through those articles and having a look at the video.

    Cheers.

  73. I added to WPC today and have been considering my other REITs, such as OHI. I could also see averaging down on UNP and TROW if they continue to drop. I got lucky with SBUX; my average price is $38 per share. My third biggest winner over the last 2 and a half years behind AAPL and (recently) KRFT. Kind of balances with my losers. HA!

  74. KeithX,

    Gotta balance those winners out with the losers, though they’re all winners in my mind as long as they continue to increase their dividends. 🙂

    I just averaged down on UNP again today. Down about 20% YTD and I think the long-term value is definitely there. WPC and OHI are both also likely going to see some capital from me in July.

    Keep it up over there!

    Cheers.

  75. Unfortunately, this is one purchase I really can’t get behind or excited about (not that you have to justify anything to me or anything. I’m just sayin’). I’m not saying it’s a bad buy or anything, but I just can’t get behind the biotech/pharmaceutical industry. Too much money that “goes away”. Goes away to R&D. Goes away to marketing. Goes away to securing FDA approval. Goes away to product recalls. Goes away to class action lawsuits. Goes away to too many things that aren’t the shareholders. I don’t like money that goes away. I like money that comes to me.

    The biotech industry is an evolving industry with many great companies and not so great companies. But like you mention, it’s not one that’s easy to understand. It makes it more difficult to judge value and fundamentals (especially when speculating on whether XYZ Product will ever make it to store shelves). It can be very exciting, sure, but I prefer to have my excitement in an episode of Game of Thrones, not in my stock portfolio.

    Plus, the fact that 50% of their sales comes from two products doesn’t sit well with me. I need a little more diversification. It’s why I go to companies like Unilever, which has…….well, you don’t need me to list all their brands. I’m sure you know some that I’d miss.

    Plus, the complete lack of a dividend history. Yeah, yeah, you’re completely right when you say that all dividend streaks have to start somewhere. KO had an IPO and no dividend history at one point. There was a point where BNS didn’t have a single dividend under its name, let alone a 150+ year dividend streak. But I still prefer to have SOME level of dividend history in something before I invest. I don’t want another ARCP.

    I’m not trying to criticize your buy or call you out or anything, but it’s just a purchase that I can’t really get behind. I’m sure GILD is a great company, but I prefer to avoid the biotech sector altogether. Maybe I need to take another look at the company down the line, but I see way too much risk when there are so many safer options out there. Maybe if I had more capital coming in to my brokerage account regularly I’d think different, but I have to be very selective with what I buy because I only get to make a few purchases every few months. At least you freely admit that it’s a speculative play. I hope you speculated correctly and make a ton of money.

    Sincerely,
    ARB–Angry Retail Banker

  76. ARB,

    Right. I’m definitely not trying to convince you or anyone else. Cheaper shares works to GILD’s benefit as well as my own. I hope people sell, sell, sell. 🙂

    Not sure where you’re going with the “go away” commentary, like the money just disappears. It’s all traceable. And almost every company spends on those items. PEP spent more than $700 million in R&D last fiscal year. And this is a food and beverage company (that’s a good measure smaller than GILD) we’re talking about. That’s money that “went away” and didn’t go to shareholders. Marketing? Lobbying? This is everywhere. I don’t understand the point. If I wanted to find a company that had none of these costs, I’d be left running a hot dog stand. Of course, as soon as I wanted to advertise in the local newspaper, I might have to find a new business. That marketing money would “go away”. And, really, let’s talk about shareholder return. GILD’s 10-year annualized return is 28.03%. UL (I use UL since you brought it up) is 10.71%. Money’s definitely going somewhere… into GILD’s shareholders’ pockets. Different stocks with different risks, but GILD is offering the reward to match that risk and then some.

    But the rest is true and that’s where I think it’s speculative. Not speculative as in it’s penny stock speculative and you might lose your entire investment. Speculative as in I’m unsure whether the dividend will grow like clockwork for, say, the next three decades. Of course, it’s impossible to predict that for any stock, even a JNJ or KO or any other. But GILD’s about as good a bet as any I’ve seen when looking at a very young dividend history. And, really, the fundamentals are far superior to almost any dividend growth stock that I currently own. Only a few stocks are even close, like V… which just so happens to be another stock that some people thought I was making a mistake on.

    It’s definitely not for everyone, though. And, like I said at the outset, I hope most people pass. Gives me and GILD the opportunity to pick up shares with less fingers in the pot.

    Best regards!

  77. When I say that the money “goes away”, I meant on those items, not shady accounting.

    I know that every company spends on R&D and marketing, but I think the biotechs spend way more than the consumer staples. Just a reality of the business. The newest cancer drug requires much more research and spending to develop than cereal. And the latter has a much larger base of customers who can buy-and-forget weekly. It’s why you, me, and everyone else has UL, GIS, and HSY in our portfolios.

    When you posted your buy article for HSY, I commented that when people ask me about what type do dividend stock they should buy (and I get asked about biotechs and nanotechs and all them), I talk about HSY. While I know that they are trying to remake some of their products with simple ingredients (so they DO spend on R&D), and they do run plenty of ads (so they DO spend on marketing), there’s only so much of both that’s needed. They are a household name that makes a buy-and-forget product that would fly off the shelves no matter what and has been flying off the shelves for over a century. A biotech company would spend way more to develop that one product, only for it to need to recall that product later once a side effect happens. Which I’m not saying will actually happen, it’s just a risk I prefer not to run on companies with a very small product line full of items that aren’t household names.

    Like I said, I’m not trying to attack your buy or sell you on the merits of HSY and UL (I would be preaching to the choir). Just giving my take on the sector, not even GILD specifically. Maybe I’ll cone around to it later (this blog changed my perception on insurance stocks, after all), but I am just not sold on the sector. But it’s like you say when you talk about ethics and investing; what’s a good fit for my portfolio may not belong in yours and vice versa.

    We’ll see. Like I said, at least you readily admit that it’s a speculative play. Hopefully it’s a decision that works out. You may well have me as a fellow shareholder in the future. Like GILD’s future dividends, time will tell.

    Sincerely,
    ARB–Angry Retail Banker

  78. ARB,

    Just wondering, where exactly do you get your information from when you make this statement:

    “I know that every company spends on R&D and marketing, but I think the biotechs spend way more than the consumer staples. Just a reality of the business.”

    Can you point me in the direction of some hard numbers? Or are you just assuming that’s fact?

    I’ll run some quick numbers by you: GILD spent $2.9 billion on SG&A last fiscal year. PG spent $25.3 billion on SG&A. PG, by the way, spent $2 billion on R&D last fiscal year. Add that SG&A and R&D together and let’s really see which firm is seeing more money “go away”.

    Can you share with me how exactly the biotechs spend more on marketing? Interested in the numbers.

    Edit to add: GILD is just plain more efficient at making money than a lot of consumer staples. The numbers are there. But if you came to me and said I’ll offer you an investment that sees “money go away” but returns 20% annually or an investment that’s super efficient but only returns 10% annually, which do you think I’d be more interested in? It seems like you’re setting up straw man arguments here. Furthermore, the speculative aspect, in my view, is related to the lack of dividend growth history and whether the dividend will continue to grow for years to come, not the quality or fundamentals of the business. If I were a betting man, I’d bet that GILD will smoke most consumer staples in terms of returns over the next 10 years. But, it’s a totally different investment. Comparing marketing and R&D between biotech and consumer staples is like comparing a Corvette to a Corolla. I find myself uninterested in straw man arguments the more time goes on.

    Cheers!

  79. I read it in a couple places, long time ago. Can’t remember the details, but that broader fact stuck out at me. I freely admit I could be remembering something wrong.

    I think you’re secretly trying to convince me to buy GILD. If you are, then you are doing a pretty good job of it 🙂 Again, keep in mind that I’m talking about the sector as a whole, not GILD specifically. Also keep in mind raft I may be an even more conservative investor than you, and also completely wrong in this debate. Hey, I have no problems admitting that.

    I know what you mean by “speculative play”. If I ever saw a Recent Buy article in which you decided to trade penny stocks, I’d assume you did so under duress.

    Glad to debate you on this topic!

    Sincerely,
    ARB–Angry Retail Banker

  80. ARB,

    Ha! I’m definitely not trying to convince you to buy GILD. It’s absolutely not a stock for everyone. And I’d rather GILD buy shares than anyone else. 🙂

    I’m also not trying to prove you wrong or make you look bad. Believe me, that’s not an interest of mine.

    What I am trying to do, however, is encourage people to think independently. Ignore the noise. Ignore the media. Ignore the headlines. Dig into the numbers. Look at this stuff yourself. One thing that’s so wonderful about being an investor is that you have all the financial information there to read, assimilate, and make decisions with. Reading an article somewhere (even here) and accepting that as gospel is a really bad idea.

    So when someone says “these companies all spend more on X than these other companies”, my ears perk up. Especially when I know it’s just not true. It’s just a headline being repeated.

    Just encouraging you to look through the numbers for yourself. And ignoring GILD might not be a bad idea. Especially if you don’t understand the business or don’t like the fact that the dividend growth record isn’t there. I wouldn’t blame you. But keep in mind that even blue-chip JNJ is a pseudo-pharma company and sees money “go away” on the stuff you’re referencing (really, all companies spend a lot of money on this stuff).

    Hope that helps!

    Cheers.

  81. Well done Jason keep on grinding those extra stock’s. I believe u will be a millionaire in some time of the future 🙂

    Nut501 as you can read in Jason’s posts… he wants quality company’s… company’s like Realty Income, WPCarey
    those that excist for decade’s or short term that have a great balance like GILD that wont be going bankrupt anytime soon.

  82. DDT,

    Thanks so much. I’m grinding away over here. I worked about as hard as I ever have during the month of June and I’m back at it 100% here to start July off. But if there was ever anything worth working hard for, it’s financial independence. 🙂

    Let’s keep buying those high-quality dividend growth stocks and we’ll both eventually become millionaires!

    Cheers.

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