In This Article:
The board of Eli Lilly and Company (NYSE:LLY) has announced that it will be paying its dividend of $1.30 on the 8th of March, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 0.9% is only a modest boost to shareholder returns.
Check out our latest analysis for Eli Lilly
Eli Lilly's Earnings Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Eli Lilly's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 340% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Eli Lilly Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $1.96, compared to the most recent full-year payment of $5.20. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Eli Lilly's Dividend Might Lack Growth
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Eli Lilly has impressed us by growing EPS at 73% per year over the past five years. However, Eli Lilly isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Eli Lilly will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Eli Lilly that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.