Impressive S&P 500 Dividend Shares Dropping by 12% Post Its Recent Slump, Offering Purchase Opportunity
Impressive S&P 500 Dividend Shares Dropping by 12% Post Its Recent Slump, Offering Purchase Opportunity
Zoetis (ZTS, up 0.81%) leads the global animal healthcare sector, offering medications, vaccines, diagnostics, genetic tests, and various other items for pets and livestock. With 15 blockbuster products generating over $100 million annually each, Zoetis is a diversified powerhouse with a strong history of market dominance.
Ever since splitting off from pharmaceutical giant Pfizer in 2012, Zoetis has increased its initial investment for shareholders roughly sixfold. This translates to an impressive annualized total return of 17% over 12 years. Despite surpassing analyst projections for the third quarter in both revenue and profits while improving full-year guidance, Zoetis' share price has fallen 12% in the past month.
Here are three reasons why now could be the perfect time to invest in this stellar S&P 500 dividend stock for the long term.
1. Zoetis dominates a resilient market
Generating two-thirds of its revenue from its pet division and the remaining from livestock, Zoetis is the industry leader in both sectors. An astounding 90% of the company's sales come from products with the highest market share.
Zoetis not only dominates its niche markets but also holds the number one position globally in the Americas and Asia, as well as being the second-largest company in Europe. This strong market position provides a substantial moat for the company, making it difficult for smaller competitors to challenge its expansive reach.
Zoetis projects that the global animal health market will continue to expand at a 5% annual rate until 2033. As a fast-growing company in a recession-resilient industry, Zoetis presents an attractive investment opportunity.
2. Strong pet-human bond fosters growth
The driving force behind Zoetis' long-term growth potential is the unwavering affection of pet owners towards their furry companions. This trend, primarily led by millennials and Gen Z, provides significant upside for Zoetis' operations. Its recent launches in pain and irritation relief treatments for pets have been met with positive responses from pet owners.
Librela and Solensia, Zoetis' osteoarthritis treatment options for dogs and cats, have seen rapid adoption among pet owners. During the third-quarter earnings call, management reported a 97% growth in its OA pain franchise. Although Zoetis already improves the lives of more than 1 million dogs, it estimates that 17 million additional dogs suffer from untreated OA.
The company's parasiticide and dermatology offerings also benefit from the strengthening of the pet-human bond. These two categories saw sales increase by 27% and 16%, respectively, during Q3. Following the pandemic-induced boom and bust cycle from 2020 to 2023, these growth sectors have given a fresh boost to Zoetis' expansion story.
A 2020 study by Zoetis revealed that pet owners are willing to reduce their expenses elsewhere to preserve their pets' wellbeing, even in the face of a 20% budget cut. This commitment to pet care should further bolster Zoetis' emerging growth areas.
3. Robust profitability and dividend increase
Despite allocating around 7% of its sales to research and development for new growth areas, Zoetis maintains a high free cash flow (FCF) margin of 25%. Moreover, its return on invested capital (ROIC) of 21% ranks in the top 20% of stocks on the S&P 500, a proven indicator of long-term outperformance.
Since debuting in 2013, Zoetis has increased its dividend annually, resulting in an extraordinary multiplication by six. Despite this impressive growth, the company only uses 33% of its FCF to fund its dividend, leaving room for future increases.
Lastly, management consistently repurchases around 1% of Zoetis' outstanding shares annually, boosting FCF-per-share growth for shareholders. Trading with a price-to-FCF of 34 compared to the S&P 500's average of 32, Zoetis seems like a classic example of a high-quality operator now trading at a fair price following the recent stock dip.
- Given Zoetis' robust profitability and consistent dividend increases, now might be an excellent time for investors interested in finance to consider investing in this S&P 500 dividend stock, as they could potentially benefit from both the company's growth in the animal healthcare sector and its high-quality financial performance.
- With Zoetis' strong financial position and continuous investment in research and development, money invested in this company could yield significant returns over the long term, as the company's diversified product portfolio and market dominance in both pets and livestock sectors promise to continue driving its annualized total return.