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How Gilead Sciences Returns Value to Shareholders

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Return on equity

Gilead Sciences is one of the top-performing companies in the US biotechnology industry. The company registered record revenues in 2014 and the first half of 2015, mainly as a result of its successful HCV (hepatitis C virus) portfolio. Also combining global leadership in the HIV market and effective marketing strategies, the company has delivered consistently high returns to its shareholders.

The above graph shows that in the first half of 2015, Gilead Sciences (GILD) had the highest return on equity followed by Celgene (CELG), Biogen (BIIB), and Amgen (AMGN). However, Gilead’s share price continues to trade at lower multiples than those of its peers. Hence, management has introduced the policy of dividends and share repurchases to boost the perceived market value of the company.

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Cash dividends

Based on better-than-expected results in 2014, Gilead Sciences announced that, effective second quarter 2015, it would start paying annual cash dividends worth $1.72 per share. The company offers a quarterly dividend of $0.43 per share, which translates to about $2.6 billion in annual distributions.

Share repurchases

In March 31, 2015, Gilead Sciences completed the $5 billion share repurchase plan authorized in May 2014. In January 2015, Gilead Sciences announced a five-year, $15 billion share repurchase program, effective from April 2015. The company repurchased $900 million in stock during the second quarter of 2015. Share repurchases lead to an increase in earnings per share, or EPS, in future financial periods, as earnings are distributed among fewer shares, which adds value to the remaining shareholders.

Warrants repurchase

Gilead Sciences paid $3.9 billion for early redemption of 46 million warrants related to 2016 convertible bonds. The company reduced its fully diluted shares by 7 million in the second quarter of 2015 and expects to retire an additional 25 million shares in the third quarter of 2015.

Investors can get exposure to the high value returned by Gilead Sciences, yet avoid company-specific risks, by investing in the iShares NASDAQ Biotechnology ETF (IBB). IBB holds 7.89% of its total holdings in Gilead Sciences.

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