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It looks like Bristol-Myers Squibb Company (NYSE:BMY) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Bristol-Myers Squibb's shares before the 6th of January to receive the dividend, which will be paid on the 1st of February.
The company's next dividend payment will be US$0.54 per share, on the back of last year when the company paid a total of US$1.96 to shareholders. Based on the last year's worth of payments, Bristol-Myers Squibb stock has a trailing yield of around 3.1% on the current share price of $62.35. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Bristol-Myers Squibb
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Bristol-Myers Squibb lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Bristol-Myers Squibb didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It distributed 30% of its free cash flow as dividends, a comfortable payout level for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Bristol-Myers Squibb was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Bristol-Myers Squibb has lifted its dividend by approximately 4.0% a year on average.