Time for Another Performance Check

For some background on the idea behind the Performance Check, and the XIRR function used for the calculations, please see my first post in this series.

It been a few months since the last Performance Check (April, in fact), but I’m continuing the series with a look at another dividend-paying stock from my Portfolio.  This time it’s Gilead Sciences (GILD), a large-cap company in the Healthcare sector, part of the biotech industry.

GILD was only founded in 1987, but has grown to have a market cap of nearly $100 billion.  From the company’s website… “GILD has over 10,000 employees across 6 continents.  It’s a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need.  GILD strives to transform and simplify care for people with life-threatening illnesses around the world.  Its portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer, inflammatory and respiratory diseases, and cardiovascular conditions.”

GILD was consistently growing its revenue and earnings when it struck gold in 2011 with the $11 billion purchase of Pharmasset.  That acquisition essentially led GILD to a near 95% cure for Hepatitis C virus (or HCV, for short) just 3 years later, and made GILD a leader in HCV treatment with Solvadi, and later Harvoni.  Hepatitis C is an infection caused by a virus that attacks the liver.  Revenues and earnings boomed in 2014 & 2015, but could not be sustained since the treatment offered a cure, as opposed to a continued treatment regimen.  GILD revenues and earnings have been on the decline since 2016, but the hope is that the HCV sales declines will soon be less significant to GILD’s overall revenue picture thanks to gains from its other pipeline drugs.

Like my last Performance Check stock Air Lease (AL), GILD is a fairly new dividend payer, as the company only began paying a dividend in 2015.  However, GILD has increased their dividend each year, and now has a streak of 3 consecutive years of dividend increases if you include the raise in 2018.  The dividend growth has been good, but the growth percentage has been trending lower the last couple of years as GILD manages their business in the wake of declining revenues in their HCV franchise.  This year’s dividend raise in February was a little over 9.6%, not shabby at all, but higher dividend growth could be expected given that they are a relatively new payer, and their payout ratio is ~35%.

Since GILD is a relatively new Portfolio position, I don’t have as much data/time to factor into the return calculated in this Performance Check, and large price changes can have a significant impact on my annualized return.

 

My Personal Performance for GILD

My initial purchase of GILD came in March 2014.  This purchase came before I started my dividend stock Portfolio, but in 2015 when I made the decision to construct a dividend Portfolio, I wanted GILD to be a part of it.

Below is a capture of the spreadsheet I keep with the GILD cash flows, and the calculated XIRR.  Compared to my five long-term Portfolio holdings, the table for GILD isn’t too long, thanks to its shorter holding period relative to those other stocks.

Here’s a note with regard to the ‘Type’ column entries: EOY Value = End Of Year Value

The duplicate EOY Value entries at the end of each year (one negative, one positive) do not affect the cash flow, and can be thought of as boundary markers, allowing me to make the individual yearly return, and the annualized total return calculations.

 

 

From the table one can see the GILD has a nice price surge in 2014 and continued upward in 2015, but fell significantly in 2016.  Since then, it’s had a tough time gaining any traction to the upside.

I was fairly active trading GILD in 2014 through 2016, but have been quiet in that regard for nearly the last 2 years.

The sale in 2014 resulted in a short-term gain of approximately $84, while the 2015 sale resulted in a long-term gain of $1,498, and the 2016 sale resulted in a long-term capital loss of $1,065.

GILD is currently just below an average weight in my Portfolio at 2.34%.

The yield for GILD is currently 3.11%, above my Portfolio average of 2.60%.

All dividend payments I’ve received from GILD have been reinvested, and thus you see no dividend payment outflows in the table.

My current investment in GILD is $7,686.00.  My cost basis, which includes $565.30 in reinvested dividends, is $8,251.30.

Meanwhile, the current value is $7,871.25, which reflects a potential capital loss should I liquidate my entire position.  Despite this, the annualized total return ends up being a positive 2.51%, covering my initial purchase on 3/3/2014, through 9/15/2018.  This positive return is thanks to the net capital gain I have on the books as a result of those three sales I discussed earlier.

 

Summary

The last 2-3 years have been a challenge for GILD, and my annualized returns reflect those recent difficulties.  My annualized returns were in the high teens at the end of 2015, but fell to the low single digits just one year later.  The return seems to have stabilized, as opposed to continuing to fall, but I’m looking for it to move up again.  As mentioned earlier, my annualized return currently stands at a less-than-exciting 2.51% over 4+ years.

Bringing the returns for the other Performance Check stocks (PG, RPM, AFL, PEP, JNJ & AL) up-to-date allows for the comparison below.

Note that I’ve added a new column showing the year of my initial purchase for each stock, just to provide some detail with regard to how many years are part of the annualized return.

As you can see, GILD is easily the poorest performer of the stocks I’ve reviewed thus far.

However, with only a few years of data factoring into the calculation, an uptick in the stock price can raise my annualized return quickly.

I’ll continue to hold GILD for now.  I’m thinking GILD might be able return 10% growth in near-term.  Along with the 3% dividend yield, I’m perhaps looking at 13% potential returns.  I’d prefer if this estimate was north of 15%, but I’m willing to see how GILD manages the business.  I’m hoping the HCV sales declines will have bottomed by the end of 2018 and we’ll begin to see an uptick in GILD’s overall revenue numbers shortly thereafter.

 

How do you prefer to monitor the performance of your portfolio stocks?  Let me know what criteria you have for acceptable performance.