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Bristol-Myers Squibb Company (NYSE:BMY) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Bristol-Myers Squibb's shares on or after the 5th of October will not receive the dividend, which will be paid on the 1st of November.
The company's next dividend payment will be US$0.57 per share, and in the last 12 months, the company paid a total of US$2.28 per share. Last year's total dividend payments show that Bristol-Myers Squibb has a trailing yield of 3.9% on the current share price of $58.04. 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.
Check out our latest analysis for Bristol-Myers Squibb
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bristol-Myers Squibb paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Bristol-Myers Squibb's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Bristol-Myers Squibb's earnings have been skyrocketing, up 44% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.