Recent Buy – TEVA

Teva Pharmaceutical Industries Limited (TEVA) is a pharmaceutical company. The Company is engaged in developing, producing and marketing generic medicines and a portfolio of specialty medicines.

Yesterday TEVA reported second quarter 2017 financial reports, lowered the 2017 business outlook and announced second quarter 2017 dividend of 8.5 cents, down 75% from 34 cents in the first quarter of 2017. Because of the negative news the share price of TEVA presented a huge decline, and it closed on $23.75 (-24.00%).

As I saw this decline of the share price, I decided to buy a few shares of TEVA and I successfully bought it at $23.97.

The company has 224.06 P/E ratio, but the forward P/E ratio is 5.05. TEVA has 0.76 Altman Z-Score, which means that it is in Distress Zone. The Debt/Equity ratio stands at 1.14, but most of them are long-term debt. (LT Debt/Equity: 1.08) I understand that the most of the investors don't like the dividend cut, but I think that the dividend cut will help the company to decrease the debt pile. I know that it is a very risky investment, but I believe that the company worth more.

Full disclosure: Long TEVA.

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GlaxoSmithKline - A Potential Dividend Cut

A few years ago I bought a few shares of GlaxoSmithKline (GSK) because of it's good dividend yield and dividend-paying track record. I felt myself really good while I was receiving the dividends. But a few month ago, I read the company’s 2016 Annual Report. I saw that the EPS was £0,19 and the dividend was £0,80, so the EPS didn’t cover the dividend. It was not a good news for me, so I read more to see the chairman’s words about it. I found this:

“Ordinary dividends of 80p per share have been declared for 2016, the same level as 2015. The company expects to maintain the same payment in 2017, in accordance with the statements made in 2015. This level of distribution still exceeds the free cash flow generated by the business despite the material improvement in cash generated in 2016 referred to above. Given that 2017 is the last year of the three year dividend commitment made in 2015, the Board will be considering the appropriate dividend policy for 2018 and beyond during the course of the year. ”

(Source: Annual Report 2016 – GSK, 04.p.)

I think that the Board will cut the dividend in 2018. The GSK needs a really good financial performance in 2017 to avoid the dividend cut. The first quater of 2017 was a good beginning, but I sold my shares, because I'm more relaxed to watch it from a little distance.

Full disclosure: I have no position in GlaxoSmithKline.