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The Motley Fool: Dividends and growth with Bristol-Myers

The Motley Fool

The Motley Fool Take

Shares of Bristol-Myers Squibb (NYSE: BMY) were recently down about 30 percent from their all-time high in July. That leaves the stock more attractively priced and a promising prospect for investors seeking both growth and income.

The drug giant was hammered in early August after the company surprisingly announced that its blockbuster cancer immunotherapy Opdivo delivered disappointing test results as a monotherapy for patients with previously untreated advanced non-small cell lung cancer.

That alone isn’t a good reason to write off the stock, though, as Opdivo can still remain a standard-of-care therapy for other conditions, and it’s being assessed in dozens of additional combination studies, too.

Bristol-Myers Squibb is also counting on the continued growth of its oral anticoagulant Eliquis, which was co-developed with Pfizer. Eliquis is already on pace for more than $3 billion in sales this year, and label expansion opportunities could allow it to potentially double its sales by 2020.

Given Bristol-Myers’ focus on oncology, Wall Street analysts anticipate that its full-year earnings per share (EPS) could double between 2015 and 2019. With Bristol-Myers historically paying out between 50 and 75 percent of its profits as a dividend, this would imply the possibility of big dividend increases to come.

Meanwhile, investors can enjoy the company’s already-solid dividend that recently yielded 3.1 percent. Bristol-Myers’ recent stock-price drop presents a great buying opportunity.

Ask the Fool

Q: What is a REIT? - J.W., St. Joseph, Michigan

A: Real estate investment trusts, or REITs, are worth considering for your portfolio, as they let you invest in real estate without actually buying any property.

A little like a mutual fund, a REIT is a professionally managed organization that pools many people’s money in order to buy or finance properties such as offices, hotels, apartments, shopping centers, data centers, resorts, storage facilities, industrial buildings, medical facilities - and even timberlands and cellphone towers. Some REITs invest in mortgages. REIT portfolios are diversified and generally produce income. Many REITs trade publicly on major stock exchanges.

REITs typically don’t pay corporate income tax and are often exempt from state income tax, as well. They’re required to invest most of their assets in properties and pay out at least 90 percent of their taxable income as dividends. Their dividends are sometimes hefty, but rising interest rates and unoccupied properties can depress earnings. Learn more at reit.com.

Q: What are “one-time charges” that I sometimes see in company earnings reports? - B.D., Gainesville, Florida

A: They’re meant to reflect unusual costs a company bears - such as a major crop loss, a plant closing, or the writing off of an investment gone bad. The charges are often added back to the company’s earnings, ostensibly to more accurately reflect its operating performance.

Imagine that Typewriter Depot (ticker: QWERTY) earns $100 million in a quarter, but it lays off many employees then, too. If its severance payments totaled $10 million and were labeled as one-time charges, then Typewriter Depot would be suggesting that its business really earned $110 million in the quarter. Beware of companies with too-frequent “one-time” charges.

My Dumbest Investment

My dumbest investment was charging an expensive laptop on a credit card in college, really only because it was sexy and I wanted it. This was right after I had just paid the card off, too. After many more poor money-management decisions, I carried a monthly balance for the next 10 years. I learned the hard way about making purchases I don’t need with money I don’t have. - Dan, Homewood, Illinois

The Fool responds: That’s an extremely valuable lesson to learn. Credit cards make it very easy to buy all kinds of things we want - even if we can’t afford them. Studies have even shown that we tend to spend more when we use credit cards than when we pay with cash.

Credit card debt is especially dangerous because many cards charge interest rates of 25 percent or more. Once you rack up significant debt, it gets hard to pay it off when you face hefty interest charges, too.

An online calculator at Credit.com shows that if you owe $10,000 on a credit card that’s charging you 25 percent in annual interest and you apply $350 per month toward paying off the debt, it will take you 44 months (which is close to four years!), and you’ll pay a total of $15,353 — including more than half of what you initially owed in interest alone. It’s not easy to get ahead when you’re mired in high-interest-rate debt.

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