#not least of all because it's harder to market to a highly diversified group

[elephantbitterhead]

it's literally pervert shit I've met 24/7 doms less horny about controlling how their subs look.

People don't actually grow out of their emo phases. People are forced out of their emo phases by employers who get a raging boner over controlling how their employees dress, cut their hair, whether they mod their bodies and so on

[topicprinter]

I posted this almost verbatim in r/marketing before, people really seemed to like it but it was removed for some reason by the mods algorithm even though it had 300 upvotes and a lot of great comments from the r/marketing community.I don't have enough reddit account history or upvotes to cross-post either, so I figured I'd repost myself to share these with r/smallbusiness and see if I can get everyone to share a favorite small business marketing secret.I'm of the belief that most marketing secrets are bullshit because they don't come from the marketers (and small business owners) that are in the trenches working in real companies...Instead they come from content teams employed by marketing gurus who predominantly sell marketing products/services and who are generally out of touch with anything else.Beyond that, they aren't even secrets, but simply re-packaged concepts with flashy new language. The secrets below are actually secrets I've never told anyone until my initial r/marketing reddit post 5 months ago.I’d love to see others open up here about things they really have kept secret as an advantage to their marketing. Yes, you may give up some great info, but we may all improve substantially as a net result of sharing with each other.A secret can be a detailed tactic, a broad strategy, a tool, a daily practice, anything...Here are 7 of my closely held marketing secrets from experience selling in real, hard markets - I'm talking about roof repair, lawyer tools, specialized hardware, food, custom skis, architectural design, gold IRA's, broadcasting equipment, cat toys, CBD oil, and christian leadership groups among other things.1) Build "Data-Driven" Marketing IntuitionIn a world obsessed over data-driven marketing, the idea of using your intuition or relying on your "gut feeling" has become obsolete.I think that's bullshit for this reason: Your past marketing experience is data that has become baked into your intuition and therefore is at least partially data-driven.It logically follows that you can build your "marketing intuition" by experiencing the change in results from many a/b tests. But you don't need to wait around for 30 years to naturally accumulate all that marketing experience, you can take a big shortcut.If you google something along the lines of "top conversion rate optimization case studies" you'll find sites like MarketingSherpa, WiderFunnel, ConversionXL with an endless supply of tests from people that have tested all kinds of things. Just be sure to make sure you're looking at reputable sources that understand statistical relevance, otherwise you'll be learning from bad data.2) Your Company Doesn't Need a Blog Just "Because""Well you gotta have a blog!" No, you don't. Thousands of companies manage to grow without a blog, I've helped many companies in both B2C and B2B grow without a blog.According to Marketing Profs, there's over 2 Million blog posts published every single day on average. If you want to compete in the blog-o-sphere, you've got to have a better reason than just "because".If you really do need to take the content route, you can create a few key pieces of phenomenal content (and remember, content isn't just written content) and probably get better results from that than from 100 blog posts.Yes, you can re-purpose it across a blog in pieces, but that not something you need to do (or necessarily should do) just because you can. Before doing that, ask yourself if each of those content pieces are valuable enough on there own to solve a problem of a prospect, if not, then it's probably not worth posting.3) Be Careful On Proprietary Martech PlatformsThe martech stack of tools is getting insane. People don't want to use a hundred different tools for their marketing, and are therefore turning to tools like Hubspot. Yes, tools like Hubspot are great, but they can come with a big unwanted side effect.The problem is that once your valuable marketing data is formatted in less-than-logical ways to be stored in their proprietary platform, switching off of their platform to anything else gets harder and harder over time.This ends with you being a slave to the martech vendor. It makes it more difficult to switch to tools that could benefit you, it leaves you subject to price increases, and it may often damage the value of your marketing data (which is super valuable).4) The Fluffy, Artsy Side of Marketing Can Be PowerfulAt the end of the quarter, marketing executives have one job. To prove ROI.That's also the time when budgets are often adjusted. Things like audio/video production, graphic design, and UX can be easily put on the chopping block since their attribution to the bottom line is not as clear as activities such as ad buying.However, the old saying is true and can be applied to marketing... "A picture is worth 1,000 words." But what no one adds to that saying is that those words can be a shitty or those words can be monumental.For instance, most featured images for blog posts are god awful stock images that add no value other than there inherent ability to draw the eyes of prospective readers. However, Netflix, on there website homepage, does something extraordinary.They moved away from lifestyle imagery on their homepage years ago, and from 2017-2019 they've had a beautiful background image, jam-packed with all of the amazing movie and show titles they know are most popular.It helps them to convert more prospects into customers. I know this because they've left it that way and that's one of the main purchase routes for new customers, plus this has been here while they've been growing by leaps and bounds. If you look in Wayback Machine, you can see them routinely update the content in the background to be the most popular and happening films and shows.Unfortunately, in this example, I am making assumptions since I don't have a Netflix marketing insider to verify that this background image is aiding conversions, but DigitalMarker literally copied that concept for their own homepage background... and they optimize every detail of their site regularly for conversions.Besides, that's just one random example. The point is multimedia can be more powerful than a highly convincing sales call or long-form piece of written content, and it only takes seconds to get your message across. That means you don't have to retain the attention of your prospects while you make your sales pitch, it's almost simultaneous.5) The 7 Deadly Sins Are Great Selling PointsFull disclosure on this one, I didn't make this one from my own experience, although I've verified that it works. Honestly, I can't remember where I heard this, it's some-what known, but it's a controversial doozie that I wanted to have in this list.The seven deadly sins are as follows:Greed (Material wealth or gain)Gluttony (Wanting more than needed)Lust (Craving pleasure)Envy (Desiring another's status)Pride (Self-glorifying)Sloth (Lazy, don't want to work)Wrath (Unleashing anger)We are all hard wired to enjoy these seven things... so it makes sense that these seven things would help people enjoy purchasing your products or services if there were a taste of them in your messaging.Each of these, depending on your product or service, can be flipped into a potential benefit or hook for your messaging.The only thing that some marketers dislike about this idea (aside from feeling somewhat unethical) is that it doesn't include the concept of fear, loss aversion, or FOMO, which are also well-known purchase drivers.6) Stay Malleable with Brand, Media, & MoreIf your company is sued over a brand name, if your company loses it's domain name, or if your brand name is suddenly destroyed either via bad PR or via association to something with a similar name that gets way more popular or in some way makes your brand unappealing, can you change your brand name easily? Is it stuck on every asset in places where it's hard to shuffle through and replace it?If your predominant media channel (whether it's Amazon, Facebook, Email, Direct Mail, Events) suddenly becomes substantially less effective or obsolete, is your pipeline safe? Is your traffic diversified like a stock portfolio?If google starts to favor AMP websites significantly more than regular HTML websites, can you change yours quickly enough to capitalize on the benefits?7) If Content is King, Then Demo Is OverlordThere is nothing that will sell your product or service better than tangibly experiencing it. That's why car dealerships offer test drives, that's why free samples are handed out in front of restaurants, that's why hardware is shipped free of cost, and that's why SaaS companies have demos easily accessible on their sites.Now, obviously, not every company can easily and affordably offer demos, but it's worth trying. Worst case scenario, produce content that is as close to demo-like as possible. For instance, a virtual demo, or a video of real prospects doing a demo, or at least case studies that show very clear depictions of before and after prospects obtain the product or service.Proof of my previous post in r/marketing: https://www.reddit.com/r/marketing/comments/b5c0i1/actual_marketing_secrets_of_real_marketers_not/I don't currently create content or have an email list, but if you're interested in potentially more stuff like this in the future, either follow my reddit account or you can bookmark my site and check back in a few months to see if I create a blog at https://troyharrington.comOkay, everyone else’s turn, 8-100, go!EDIT: Thanks for the gold you awesome anonymous person whoever you are!!!

[theconservativebrief]

Christie’s, the famed auction house, recently sold an AI-generated painting for $432,500. The piece, titled “Portrait of Edmond Belamy,” was made by Obvious, a French art collective, and sold for roughly 45 times its estimated worth.

The sale was controversial, though not entirely because of the painting’s steep price tag. Paying $450,000 for a buzzy work of art — especially one that may sell well later on — isn’t unheard of in the art world. The most coveted works sell for many times that. Sotheby’s Hong Kong sold a Picasso for $7.79 million in September; a pair of paintings by the late Chinese-French painter Zao Wou-Ki sold for $65.1 million and $11.5 million, respectively, at that same sale. Leonardo da Vinci’s “Salvator Mundi” sold at Christie’s last year for $450 million, making it the most expensive work of art ever sold.

According to a joint report by UBS and Art Basel released in March, the global art market saw $63.7 billion in total sales last year. But that doesn’t mean that most artists see even a small fraction of that money, since the highest-value sales usually involve one wealthy collector putting a highly sought-after work up for auction.

The money generated from that sale, then, goes to the work’s previous owner, not to the artist who made it. (Artists profit off their own work when it’s sold on what’s known as the “primary market,” i.e., directly from a gallery or from the artist herself. When art is sold on the “secondary market,” however — meaning that it’s sold by a collector to another collector, either privately or at an auction — only the seller and, if applicable, the auction house profits.)

Aside from a handful of celebrity artists — Jeff Koons, Damien Hirst, and Yayoi Kusama, to name a few — most living artists’ works will never sell in the six- or seven-figure range. The result of all of this is that a small group of collectors pay astronomical prices for works made by an even smaller group of artists, who are in turn represented by a small number of high-profile galleries. Meanwhile, lesser-known artists and smaller galleries are increasingly being left behind.

The short answer is that most art isn’t. Pieces sold for six and seven figures tend to make headlines, but most living artists’ works will never sell for that much.

To understand why a few artists are rich and famous, first you need to realize that most of them aren’t and will never be. To break into the art market, an artist first has to find a gallery to represent them, which is harder than it sounds. Henri Neuendorf, an associate editor at Artnet News, told me gallerists often visit art schools’ MFA graduate shows to find young talent to represent. “These shows are the first arena, the first entry point for a lot of young artists,” Neuendorf said.

Some gallerists also look outside the art school crowd, presumably to diversify their representation, since MFAs don’t come cheap. (In 2014, tuitions at the 10 most influential MFA programs cost an average $38,000 per year, meaning a student would have to spend around $100,000 to complete their degree.) That said, the art world remains far from diverse. A 2014 study by the artists collective BFAMFAPhD found that 77.6 percent of artists who actually make a living by selling art are white, as are 80 percent of all art school graduates.

Christie’s sold its first piece of computer generated art, “Portrait of Edmond Belamy,” for $432,500. Christie’s

Artists who stand out in a graduate show or another setting may go on to have their work displayed in group shows with other emerging artists; if their work sells well, they may get a solo exhibition at a gallery. If their solo exhibition does well, that’s when their career really begins to take off.

Emerging artists’ works are generally priced based on size and medium, Neuendorf said. A larger painting, for example, will usually be priced between $10,000 and $15,000. Works on canvas are priced higher than works on paper, which are priced higher than prints. If an artist is represented by a well-known gallery like David Zwirner or Hauser & Wirth, however, the dealer’s prestige is enough to raise the artist’s sale prices, even if the artist is relatively unknown. In most cases, galleries take a 50 percent cut of the artist’s sales.

This process is becoming increasingly difficult thanks to the shuttering of small galleries around the world. The UBS and Art Basel report found that more galleries closed than opened in 2017. Meanwhile, large galleries are opening new locations to cater to an increasingly global market.

Olav Velthuis, a professor at the University of Amsterdam who studies sociology in the arts, attributes the shuttering of small galleries to the rise of art fairs like Frieze and Art Basel. In a column for the New York Times, Velthuis wrote that these fairs, which often charge gallerists between $50,000 and $100,000 for booth space, make it incredibly difficult for smaller gallerists to come home with a profit. But since fairs are becoming the preferred way for wealthy collectors to buy art — they can browse art from hundreds of galleries in a single location, all while hobnobbing with other collectors — galleries have no choice but to participate.

Smaller galleries tend to represent emerging artists, putting both the dealer and artist at yet another disadvantage. “The issue is that demand for art is not distributed evenly among all living artists,” Velthuis told me in an email. “Instead, many people are going after a small number of artists. That’s what’s driving up prices.”

Given the subjective nature part in general and contemporary art in particular, it’s hard for collectors to discern whether an artist is truly good. “The art market functions as a big consensus marketing machine,” said Velthuis. “So what people do is look at quality signals. Those signals can for instance be what an important curator is saying about an artist; if she has exhibitions in museums; if influential collectors are buying his work. Because everybody is, to some extent at the least, looking at the same signals, at one point they start agreeing who are the most desirable artists.”

In other words, some artists’ works are expensive because there’s a consensus in the art world that their works should be expensive. And, Velthuis adds, art “is a market for unique objects,” which adds a sense of scarcity into the mix. There are only a few known da Vinci paintings in existence, some of which belong to museums and are therefore permanently off the market. (It’s a “big taboo” for museums to sell works from their collection, Velthuis told me.) It only makes sense that when a da Vinci is up for auction, someone with the means to pay hundreds of millions of dollars for it will do just that.

“The issue is that demand for art is not distributed evenly among all living artists. Instead, many people are going after a small number of artists. That’s what’s driving up prices.” —Olav Velthuis

Just 0.2 percent of artists have work that sells for more than $10 million, according to the UBS and Art Basel report. But 32 percent of the $63.7 billion in total sales made that year came from works that sold for more than $10 million. An analysis conducted by Artnet last year similarly found that just 25 artists accounted for nearly half of all contemporary auction sales in the first six months of 2017. Only three of those artists were women.

“It definitely is a good example of a winner-take-all market, where revenues and profits are distributed in a highly unequal way,” Velthuis said. “[On] principle, it is not a problem in itself. However, galleries in the middle segment of the market are having a hard time surviving, and if many of them close their doors, that is bad for the ecology of the art world. We should think of ways to let profits at the top trickle down to the middle and bottom.”

The 2017 sale of da Vinci’s “Salvator Mundi” reignited discussions about the role of money in the art world. Georgina Adam, an art market expert and author of Dark Side of the Boom: The Excesses of the Art Market in the 21st Century, explained how it’s possible that a single painting could cost more money than most people would ever see in their lifetimes.

“Very rich people, these days, have an astonishing amount of money,” art expert Georgina Adam told the Financial Times. A gallerist interviewed in her book, The Dark Side of the Boom: The Excesses of the Art Market in the 21st Century, explained it this way: If a couple has a net worth of $10 billion and decides to invest 10 percent of that in art, they can buy $1 billion worth of paintings and sculptures.

There are more collectors now than ever before, and those collectors are wealthier than they have ever been. According to Adam’s book, the liberalization of certain countries’ economies — including China, India, and Eastern European countries — led to an art collection boom outside of the US and Western Europe. (The art market is also booming in the Gulf states.) As a result, the market has exploded into what writer Rachel Wetzler described as “a global industry bound up with luxury, fashion, and celebrity, attracting an expanded range of ultra-wealthy buyers who aggressively compete for works by brand-name artists.”

Art isn’t just a luxury commodity; it’s an investment. If collectors invest wisely, the works they buy can be worth much more later on. Perhaps the most famous example of this is Robert Scull, a New York City taxi tycoon who auctioned off pieces from his collection in 1973. One of the works was a painting by Robert Rauschenberg that Scull had bought for just $900 in 1958. It sold for $85,000.

The Price of Everything, a documentary about the role of money in the art world released in October, delves into the Scull auction drama and its aftermath. Art historian Barbara Rose, whose report on the auction for New York magazine was titled “Profit Without Honor,” called that auction a “pivotal moment” in the art world.

“The idea that art was being put on the auction block like a piece of meat, it was extraordinary to me,” Rose said in the film. “I remember that Rauschenberg was there and he was really incensed, because the artists got nothing out of this. … Suddenly there was the realization — because of the prices — that you could make money by buying low and selling high.”

More recently, the 2008 financial crisis was a boon for a few wealthy collectors who gobbled up works that were being sold by their suddenly cash-poor art world acquaintances. For example, billionaire business executive Mitchell Rales and his wife, Emily, added “about 50 works” to their collection in 2009, many of which they purchased at low prices, according to a 2016 Bloomberg report. The Rales family’s collection is now worth more than $1 billion.

“People who were active [buyers] at the time are very happy today,” art adviser Sandy Heller told Bloomberg. “Those opportunities would not have presented themselves without the financial crisis.”

A highly valued work of art is a luxury good, an investment, and, in some cases, a vehicle through which the ultra-wealthy can avoid paying taxes. Until very recently, collectors were able to exploit a loophole in the tax code known as the “like-kind exchange,” which allowed them to defer capital gains taxes on certain sales if the profits generated from those sales were put into a similar investment.

In the case of art sales, that meant that a collector who bought a painting for a certain amount of money — let’s say $1 million — and then sold it for $5 million a few years later didn’t have to pay capital gains taxes if they transferred that $4 million gain into the purchase of another work of art. (The Republican tax bill eliminated this benefit for art collectors, though it continues to benefit real estate developers.)

A gallery assistant views a painting by Turkish artist Fahrelnissa Zeid, titled Towards a Sky, which sold for £992,750 at Sotheby’s Middle Eastern Art Week in London in April 2017. Anadolu Agency/Getty Images

Collectors can also receive tax benefits by donating pieces from their collection to museums. (Here’s where buying low and donating high is really beneficial, since the charitable deduction would take the current value of the work into account, not the amount the collector originally paid for it.)

Jennifer Blei Stockman, the former president of the Guggenheim and one of the producers of The Price of Everything, told me that galleries often require collectors who purchase new work by prominent artists to eventually make that work available to the public.

“Many galleries are now insisting that they will not sell a work to a private collector unless they either buy a second work and give it to a museum, or promise that the artwork will eventually be given to a museum,” Stockman said. These agreements aren’t legally enforceable, but collectors who want to remain in good standing with galleries tend to keep their word.

Artists’ works don’t necessarily have to end up in publicly-owned museums in order to be seen by the public. Over the past decade, a growing number of ultra-wealthy art collectors have opened private museums in order to show off the works they’ve acquired. Unlike public museums, which are hindered by relatively limited acquisitions budgets — the Louvre’s 2016 budget, for example, was €7.3 million — collectors can purchase just about any work they want for their private museums, provided they have the money. And since these museums are ostensibly open to the public, they come with a slew of tax benefits.

“The rich buy art,” arts writer Julie Baumgardner declared in an Artsy editorial. “And the super-rich, well, they make museums.”

Materially speaking, artists only benefit from sales when their works are sold on the primary market, meaning a collector purchased the work from a gallery or, less frequently, from the artist himself. When a work sells at auction, the artist doesn’t benefit at all.

For decades, artists have attempted to correct this by fighting to receive royalties from works sold on the secondary market. Most writers, for example, receive royalties from book sales in perpetuity. But once an artist sells a work to a collector, the collector — and the auction house, if applicable — is the only one who benefits from selling that work at a later date.

In 2011, a coalition of artists, including Chuck Close and Laddie John Dill, filed class-action lawsuits against Sotheby’s, Christie’s, and eBay. Citing the California Resale Royalties Act — which entitled California residents who sold work anywhere in the country, as well as any visual artist selling their work in California, to 5 percent of the price of any resale of their work more than $1,000 — the artists claimed that the eBay and the auction houses had broken state law. But in July, a federal appeals court sided with the sellers, not the artists.

Even if artists don’t make any money from these sales, Stockman told me, they can occasionally benefit in other ways. “Artists do benefit when their pieces sell well at auction, because primary prices are then increased,” Stockman said. “However, when a piece sells at auction or in the secondary market, the artist does not [financially] benefit at all, and that, I know, is very scary and upsetting to many artists.”

Taken together, all of these factors paint a troubling picture: Access to art seems to be increasingly concentrated among the superrich. As the rich get richer, collectors are paying increasingly higher prices for works made by a handful of living artists, leaving emerging artists and the galleries that represent them behind. Then there’s the question of who even gets to be an artist. Art school is expensive, and an MFA doesn’t automatically translate to financial success in such a competitive industry.

Jeff Koons’s “Popeye” was purchased for $28 million by billionaire casino tycoon Steve Wynn in 2014. Emmanual Dunand/AFP/Getty Images

There is some pushback to this concentration of the market at the very top — or even to the idea that art is inaccessible to the average person. Emily Kaplan, the vice president of postwar and contemporary sales at Christie’s, told me that the auction house’s day sales are open to the public and often feature works that cost much less than headlines would lead you to believe.

“Christie’s can be seen as an intimidating name for a lot of people, but most of the sales that we do are much lower prices than what gets reported in the news,” said Kaplan. “We have a lot of sales that happen throughout the calendar year in multiple locations, especially postwar and contemporary art. … Works can sell for a couple hundred dollars, one, two, three thousand dollars. It’s a much lower range than people expect.”

Affordable art fairs, which usually sell art for a few thousand dollars, are another alternative for people who want to buy art but can’t spend millions on a single sculpture. Superfine, an art fair founded in 2015, describes itself as a way of bringing art to the people. Co-founders James Miille and Alex Mitow say the fair is a reaction to the inflated prices they saw on the high end of the “insular” art market.

“We saw a rift in the art market between artists and galleries with amazing work who need to sell it to survive, and people who love art and can afford it but weren’t feeling like a part of the game,” Mitow told me in an email. “Most transactions in the art market actually occur at the under $5,000 level, and that’s what we’re publicizing: the movement of real art by real living artists who build a sustainable career, not necessarily outlier superstar artists with sales records that are unattainable for the average — if equally qualified — artist.”

In addition to hosting fairs in New York City, Los Angeles, Miami, and Washington, DC, Superfine sells works through its “e-fair.” In the same vein as more traditional art fairs like Art Basel, Superfine charges artists or gallerists a flat fee for exhibition space, though Superfine’s rates are much lower.

In spite of these efforts to democratize art, though, the overall market is still privileged towards, well, the very privileged. Art patronage has always been a hobby for the very rich, and that’s not going to change any time soon — but the ability to look at beautiful things shouldn’t be limited to those who can afford to buy them.

Original Source -> Why is art so expensive?

via The Conservative Brief

[victorparker1-blog]

Merck (MRK): A Slow and Steady Dividend Grower, but Do Better Alternatives Exist?

Blue chip drug makers such as Merck (MRK) have historically been very popular with income investors because of their defensive nature, meaning that drug demand isn’t really affected by economic downturns.

However, what many investors fail to realize is that, while the pharmaceutical industry as a whole may be recession resistant, successful long-term dividend growth investing is far harder to achieve at the company level.

This is why just two drug makers are part of the venerable dividend aristocrats list, meaning they are S&P 500 companies that have managed to raise their payouts for at least 25 consecutive years.

Let’s take a look at Merck to see if this high-yield favorite is a reasonable choice for a diversified dividend portfolio, especially in light of recent challenges that have sent MRK’s stock on its largest two-day decline in more than eight years, according to Reuters.

Business Overview

Merck has deep roots, going back to 17th century Germany, but in the U.S. it was founded in 1891 in Kenilworth, New Jersey. Today Merck is one of the largest pharmaceutical giants in the world, with 69,000 global employees selling drugs in over 140 countries through two main divisions.

Pharmaceutical (88.7% of Q3 2017 revenue) makes patented drugs to treat all manner of diseases and conditions, such as cardiovascular disease, type 2 diabetes, asthma, chronic hepatitis C virus, HIV-1 infection, fungal infections, hypertension, arthritis, osteoporosis, and fertility diseases.

It also offers anti-bacterial products, cholesterol modifying medicines, and vaginal contraceptive products, as well as vaccines for measles, mumps, rubella, varicella, chickenpox, shingles, rotavirus gastroenteritis, and pneumococcal diseases.

The company’s bread and butter sales, earnings, and free cash flow stem from just nine main large drugs, including blockbusters Januvia (type 2 diabetes) and Keytruda (antibody based cancer drug).

Source: Merck Earnings Release

Animal Health (9.7% of Q3 2017 sales) sells antibiotic and anti-inflammatory drugs to treat infectious and respiratory diseases, fertility disorders, and pneumonia in cattle, horses, and swine; vaccines for poultry, parasiticide for sea lice in salmon, and antibiotics and vaccines for fish

Merck’s remaining sales come from two smaller divisions (1.6% of Q3 2017 revenue), Healthcare Services (serves drug wholesalers and retailers, hospitals, government agencies and entities, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers) and Alliances segments (collaborations with Aduro Biotech, Inc, Premier Inc, Cancer Research Technology, Corning, Pfizer Inc, AstraZeneca PLC,  and SELLAS Life Sciences Group Ltd).

Merck’s 2016 sales were geographically diversified, with the U.S. responsible for 46.5% of revenue, with international markets representing 53.5%.

Business Analysis

Like most major drug makers, Merck struggles to maintain consistent top and bottom line growth.

Source: Simply Safe Dividends

This is inherent in the business model, which relies on patented medications, whose patents eventually roll off, resulting in strong generic competition. In addition, rival medications, even for patented drugs, are constantly hitting the market, meaning that its top products face a boom and bust cycle.

Combined with high fixed costs, primarily in R&D spending on developing its large drug pipeline ($9.9 billion or 24.8% of last 12 month’s revenue), Merck’s margins and returns on capital can be volatile, as are its overall earnings and free cash flow.

Another problem Merck faces is that because of the drug development hamster wheel (even new blockbusters merely replace revenue lost to patent expirations and rival products), its growth is largely dependent on large-scale acquisitions, such as its $41 billion purchase of Schering-Ploughin 2009 to help diversify the busienss.

Such large purchases are incredibly tough to pull off successfully because they require careful integration of differing corporate cultures, R&D pipelines, and administrative organization to deliver on expected synergistic cost savings (i.e. elimination of overlapping business costs).

Another challenge for Merck is that in this industry there are three primary factors that determine success: drug pipeline, manufacturing efficiency, and distribution. In other words, economies of scale.

However, while Merck is a large player, it’s management is not nearly as high-quality as those of larger and better run rivals such as Pfizer (PFE), and Johnson & Johnson (JNJ), which is arguably the gold standard of drug makers.

This can be seen in Merck’s inferior profitability, including lower returns on invested capital and a lower free cash flow margin.

Trailing 12-Month Profitability

Sources: Morningstar, Gurufocus, CSImarketing

Now that’s not to say that Merck is a terrible company. After all, it does have a solid track record of bringing numerous successful drugs to market, including its current rock star, cancer drug Keytruda.

Source: Merck Investor Presentation

Thanks to receiving numerous approvals for a growing number of cancer indications, plus greater rollout to over 50 countries in the past year, Keytruda sales increased to $1.05 billion last quarter, up from $356 million a year ago.

Better yet? Analysts expect this drug to eventually generate peak sales of $10 billion per year, according to Morningstar.

Unfortunately, global sales may not be as robust as analysts currently hope. Merck provided an update last Friday that it was withdrawing an application to sell Keytruda as a first-line treatment for lung cancer in combination with chemotherapy in European markets.

The company also said it experienced a delay in another Keytruda study. A decision to make overall survival a main goal for a pivotal lunch cancer trial of Keytruda plus chemotherapy will push back those results until February 2019, according to Reuters.

With lung cancer representing the most lucrative oncology market and first-line approval giving access to most patients, this news was unsurprisingly received poorly by investors.

While this news is certainly not lethal for the company or its dividend, it potentially disrupts a very important growth driver that investors had been banking on.

Outside of Keytruda, Merck has a large pipeline of 36 drugs in development, including several potential blockbuster drugs including biosimilar (i.e. biological generics) versions of other companies’ blockbuster medications, such as Humira, Remicade, Enbrel, Lantus, and Herceptin, which combined sold $40 billion last year.

This strong pipeline should at least keep its sales, earnings, and free cash flow relatively stable in the coming years. For example, Merck currently expects 2017 sales to be essentially flat compared to 2016 ($39.6 billion vs $39.8 billion, respectively).

Despite stagnant revenue, due to the high margins on Keytruda, which still has patent protection, and cost cutting actions over the past year, EPS is expected to rise about 18% in 2017.

This impressive operational leverage (earnings growing faster than sales) is a hallmark of the drug industry; while a drug has patent protection and is growing quickly, profits can surge.

However, this patented drug hamster wheel is also a double-edged sword because unlike Johnson & Johnson, which also markets stable over-the-counter consumer products, as well as medical devices, Merk is essentially a pure play biotech company, whose earnings and free cash flow can be highly volatile.

So while short-term focused Wall Street might cheer at brief periods of explosive earnings growth, ultimately long-term dividend growth investors have a lot less to like about the highly complex, and cyclical nature of big drugmakers such as Merck.

That’s because the company faces numerous challenging headwinds that could make it a rather underwhelming long-term dividend growth investment.

Key Risks

While the worst of its patent cliff is behind it, Merck will lose patent protection on several key drugs in the coming years, including cholesterol drugs Zetia and Vytorin (generic competition likely in 2017 and 2018), as well as its steroid and decongestant Nasonex. These drugs combine for around 5% of company-wide revenue.

In fact, Merck’s selloff this past Friday was driven in part by disappointing sales of off-patent pharma products. Here’s what the company stated in its press release:

“The pharmaceutical sales decline was largely driven by the loss of U.S. market exclusivity for ZETIA (ezetimibe) in late 2016 and VYTORIN (ezetimibe/simvastatin) in April 2017, medicines for lowering LDL cholesterol, and the ongoing impacts of generic competition for CUBICIN (daptomycin for injection), an I.V. antibiotic, and biosimilar competition for REMICADE (infliximab), a treatment for inflammatory diseases, in the company’s marketing territories in Europe. In the aggregate, sales of these products declined approximately $800 million during the third quarter of 2017 compared to the third quarter of 2016.”

Management is wisely focusing on oncology, where it has a first mover advantage in revolutionary new therapies based on antibody treatments (very high margin), specifically in treating non-small-cell lung cancer, but this space is going to be increasingly competitive, with major drug trial results for rival products expected in 2017 and 2018.

In addition, Merck is forced to spend a fortune on R&D to bring its drug pipeline to market, up to $2.7 billion per drug (and climbing over time), and there is no guarantee that potential blockbusters will actually receive approval.

Source: Tufts Center For The Study Of Drug Development, Scientific American

For example, in the past Merck has faced numerous failures in drug development, including:

Cardiovascular disease drugs Tredaptive, Rolofylline, and TRA

Telcagepant for migraines

Osteoporosis drug odanacatib

In addition, late-stage drug anacetrapib (for heart disease), is chemically similar to rival drugs (torcetrapib and dalcetrapib) which failed to receive approval.

In other words, there is a lot of uncertainty around just how valuable Merck’s drug development pipeline will truly be to the bottom line, especially in light of its recent update on Keytruda, the company’s biggest earnings driver over the short-term.

Next, it’s worth mentioning that all drug makers (as well as all companies in the medical space) face constant uncertainty regarding healthcare regulations.

For example, Merck does most of its overseas business with national health systems that sometimes have strict regulations limiting drug prices, which forces Merck to turn to U.S. sales to cover its expensive and time consuming (up to 12 to 13 years to bring a drug market) development process.

However, U.S. healthcare policy is also in flux, not only because an eventual repeal of the Affordable Care Act could remove over 20 million Americans from the healthcare system (lowering access to and demand for drugs), but also because current regulations forbid Medicare and Medicaid from negotiating bulk drug purchases with pharmaceutical companies.

If this changes in the future, then all drug makers could see significant margin compression. Merck, already recording from below average profitability, could suffer more than most, especially when it comes to its future dividend growth.

Finally, be aware that all drug makers face significant legal risk, specifically from lawsuits of approved drugs that end up harming consumers.

For example, in 2004 Merck pulled its pain killer Vioxx from the market after subsequent studies showed it increased the risk of heart attack and stroke.

Over the next 12 years the company faced numerous class action lawsuits from consumers, the Department of Justice, and various states Attorney’s General. All told, the long legal battles resulted in almost $6 billion in fines and settlements.

The bottom is that Merk isn’t as low risk of a stock as many investors may believe, and its overall payout profile is a bit lacking, both when it comes to safety and long-term growth potential.

Merck’s Dividend Safety

We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend.

Our Dividend Safety Score answers the question, “Is the current dividend payment safe?” We look at some of the most important financial factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more.

Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score at least 60. Since tracking the data, companies cutting their dividends had an average Dividend Safety Score below 20 at the time of their dividend reduction announcements.

We wrote a detailed analysis reviewing how Dividend Safety Scores are calculated, what their real-time track record has been, and how to use them for your portfolio here.

Merck has a Dividend Safety Score of 58, indicating about average dividend safety, and far lower than Johnson & Johnson’s 96. That’s not surprising given that Merck’s dividend growth record leaves a lot to be desired, especially compared to dividend king JNJ.

As you can see, while Merck’s dividend has generally moved in the right direction (with no cuts in the past three decades), the company’s volatile sales, earnings, and cash flows can also mean long stretches with no growth at all.

This is because Merck’s EPS and FCF payout ratios have historically been much higher than rivals such as Pfizer and Johnson & Johnson, resulting in less secure payouts and forcing management to be far less consistent with its dividend increases.

The good news is that, despite high EPS volatility, Merck’s free cash flow usually covers the dividend, which combined with a strong balance sheet allows it to deliver safe (though slow growing) income to investors.

At first glance you might think that Merck’s large net debt position makes for a rather precarious dividend. However, we need to keep in mind that, due the need for massive R&D spending and the occasional large acquisition (to fuel growth), most drug makers have similarly high debt levels.

For example, when we compare Merck’s debt levels to those of its peers, we find a slightly below average leverage ratio (debt/EBITDA), and average (but conservative) debt to capital and current ratios (short-term assets/short-term liabilities).

And thanks to its strong cash flows, Merck’s above average interest coverage ratio gives it one of the best investment grade credit ratings in the industry.

Sources: Morningstar, Fastgraphs, CSImarketing

That allows the company to borrow very cheaply (about 3.7% average interest rate), which is far below its return on invested capital. In other words, Merck has plenty of access to cheap growth capital to continue investing in its business, while also paying out a generous dividend.

Overall, Merck’s dividend payment appears to be quite safe. The company’s payout ratio is healthy, cash flow generation is excellent, the balance sheet is reasonably flexible, and earnings are expected to continue growing at a moderate pace. With uninterrupted dividend payments since 1970, the company is very committed to its payout.

Merck’s Dividend Growth

Merck’s dividend has historically grown at a relatively slow pace, recording 4% compound annual growth over the past five years. This isn’t surprising given the cyclical nature of the drug business, which led Merck to hold its quarterly dividend constant at 38 cents per share from September 2004 through September 2011.

However, thanks to a strong pipeline, especially of breakthrough treatments for cancer (and cancer drug combinations), analysts expect Merck’s earnings and cash flow to grow at about 5% to 7% over the next ten years. This is far stronger than in the past five years, when a steep patent cliff resulted in negative organic growth.

That being said, because of Merck’s relatively high payout ratios, the dividend will likely need to grow slower than the bottom line in order to ensure a strong safety buffer against future profit declines.

This means that investors can potentially expect 3% to 5% annual dividend growth over the long-term, which is about in line with the company’s long-term payout growth rate.

Valuation

Over the past year, Merck has underperformed the S&P 500 by about 25%. As a result, the company’s forward P/E ratio has dropped to 13.2, a meaningful discount to the S&P 500’s 17.9 ratio and the stock’s historical norm of 22.7.

From an income perspective, Merck’s 3.4% dividend yield is somewhat higher than the stock’s five-year average yield of 3.1%.

  At current prices, Merck has potential to generate long-term annual total returns of 8.4% to 10.4% (3.4% yield + 5% to 7% annual earnings growth). While that’s nothing to scoff at, there is elevated uncertainty today given recent developments with Keytruda.

Overall, Merck’s current valuation doesn’t seem unreasonable given the company’s long-term outlook.

Conclusion

Merck is one of those boring but beautiful blue chips that you’re unlikely to lose money on, as long as you hold long enough.

After all, management, though periodically struggling to deliver consistent sales, earnings, and free cash flow growth, has proven itself incredibly dedicated to maintaining the dividend over time.

With a solid balance sheet, a recession-resistant product portfolio, consistent free cash flow generation, and a discounted P/E ratio, Merck could be interesting for investors who are willing to look past disappointing news on the company’s most important drug over the short-term.

However, Merck is unlikely to grow its dividend much in excess of the rate of inflation over time. Investors looking for a better combination of income and growth, without the uncertainty that comes with drug pipelines, can review some of the best high dividend stocks here.

This article was originally featured on Simply Safe Dividends.

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from victorparker https://www.modestmoney.com/merck-mrk-slow-steady-dividend-grower-better-alternatives-exist/

[mirmohammadalikhan-blog]

How Driving A Taxi Prepared Me To Run An Investment Bank... ‪#MirMak

How Driving A Taxi Prepared Me To Run An Investment Bank... ‪#MirMak (Yes Its A Long Article, but If you are young and want to change yourself to prepare for success, I suggest you read it.) Reposted From My LinkedIn Articles. If something in life does not challenge your inner self, it will not change your life outwardly. Success comes when your inner ego breaks into pieces. The " I " in you has to shatter before you rebuild your new you. Its like a wall of bricks, each brick put together in totality makes an entire wall. Consider your character made up of bricks. Each habit, each trait you develop consciously or unconsciously over your lifetime from birth makes you who you are. You walk a certain way. you talk a certain way, you think in a particular manner, your likes your dislikes, your approach towards life, your thought process towards a certain situation...they are all like individual bricks, when put together, they make a wall of your personality called " I " or "ME"... And this I or ME is not by conscious effort that it has been developed. You look at other people and learn subconsciously, you witness events in life and you unknowingly develop a liking and start reacting a certain way towards those events when they appear in your life. You have no choice as to where each brick should have been placed, the wall of your personality Just developed over a period of time and you inherited it. You like it or not, It has become you. If each brick is considered a habit, for example, confidence is one brick, laziness is another, positivity is another, optimism is another, and all bricks together make your personality. But you dont have a choice by the time you are in your late teenage years, to rearrange the bricks as per your liking. Maybe you want to have more bricks of confidence in your wall of personality, you cant add or delete a brick because if you try to, then the entire wall will come trembling down. THEN Comes a time in your life when you know that the wall is about to break down and all the bricks will be falling before your eyes. It will be the most scariest event in your life and the most beneficial if you handle it right. Because now you can rebuild the life as per your liking. Take out the bricks of negativity and pessimism or the bricks of fear and impatience and replace them all with the bricks of your liking. But it scares you when you know that the wall will break down soon and you dont know how many ugly bricks of your personality will appear that you will not like. And the process of rebuilding the wall will be the most painful process you have ever gone through. My wall of personality was shaken when i landed in America and my first job as a teenager was to Mop floors and wash bathrooms at Burger King on Easton Ave, Somerset, New Jersey. I had so many bricks of ego. My entire wall was bricks of ego, pride, thinking of myself highly, considering mopping floors a derogatory job and everything else you can think of. I had two choices, either not to do it and keep looking for another job making excuses or rise to the occasion and break the wall quicker so i can rebuild it quicker. The thoughts that would come to my mind were many, A person with my family background will wash bathrooms and mop floors ? " I " Mir Mohammad Alikhan will be seen with a mop in my hands cleaning floors at a restaurant ? But when I decided that as a student i will do everything that all others do in America. I will blend in. Leave my old habits aside. Will have no ego. Will work harder than even the Americans. All of a sudden the wall started to break and there were so many bricks in my wall of personality that i did not like or know that they were there. Then began the process of rearranging the entire brick formation and rebuild the wall one brick at a time. But at least this time around i began to put the bricks in places that i wanted in my personality. positivity, optimism, humility, confidence, pleasantness, and whatever else i wanted. I realized that very soon this process will become my past and it will be the most beneficial thing i would have ever done for myself. Because past is where you learn your lessons, future is where you apply them and its the middle where you should not give up. Then came a time when i started driving a taxi in summer time. Taking passengers from all over somerset county to Newark airport. Every time without fail i would get a different personality of people. Angry, pissed off, talkative, happy, pessimist, overly confident, you name it and i would have to deal with them. Never could i have guessed what the next passenger will be like. I started having a conversation with each passenger. I would drive the cab for 16 hours a day, from 7am till 11pm at night. Seven days a week trying to save up for my next semester's fee. I realized that all my hardships were coming from outside but if i failed, my failure will only come from inside because i gave up. I decided never to give up. I started to learn from such diversified group of people with such varied personalities. It developed an interest in me for human behaviour which till this day i am fascinated with the subject. Learning about situations, personalities, events and many many more things from my dear teachers, my passengers, prepared me for Wall Street. yes, driving a taxi prepared me for success. Wall Street is the same, you never know the next move of the market, if its in a good mood, bad mood, confused or whatever. The same is with the clients. you never know what he is thinking. You never know if the deal will work out or not. You have to leave your ego aside and deal with every situation at its own merit. Without pre-proposed expectations. Be ready for anything. Any Hardship. Use the new arrangements of your personality wall of bricks to your advantage. No point in stressing over something you cant change, rather, change yourself and grow stronger. People say you only live once. They are wrong. Very wrong. You live everyday. You only die once. So live everyday and get closer to your dreams. Live your dreams. Dont let your dreams die before you. Your death should come before your dream's death. Thats called die trying. And thats the only thing you have in your favour, trying. All the hardships of today will look easy if you believe in your deepest part of your subconscious that tomorrow will be a better day.