Market Overview

Is Teva's 4% Dividend Yield Safe?


Shares of Teva Pharmaceutical Industries Ltd (ADR) (NYSE: TEVA) plunged more than 5 percent after the company's CEO and President Erez Vigodman will step down, effective immediately.

Yithak Peterburg, Teva's chairman since early 2015, will replace Vigodman at a time when the company is also being investigated on bribery charges by local authorities.

As noted by Gadfly's Max Nisen, whenever a CEO suddenly steps down from a company, the replacement isn't "inheriting a corporate bouquet of roses."

Unfortunately, in Teva's case, there is no time to wait for a permanent replacement as there is much to do, including coming up with a game plan to address the loss of billions of dollars from its top selling therapy Copaxone after the expiration of the company's patent.

There is also the fact that Teva's entire debt load exceeds the stock's valuation, which likely means the stock's 4 percent dividend yield could be first on the chopping block.

Although some investors are likely buying Teva's stock for the yield alone, getting rid of the dividend might be in the company's best interest for the long-term.

Specifically, Teva's management team will have greater financial resources at its disposal to find a successor to Copaxone. In addition, a healthier balance sheet would also make it easier for the company to split itself into separate branded and generic businesses.

"A shored-up balance sheet is likely more appealing to many investors than the contortions required to keep paying out a possibly unsustainable dividend," Nisen concluded.

Posted-In: Bloomberg Gadfly Erez Vigodman Max Nisen teva Teva CEOBiotech Media General


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