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Eli Lilly and Company (NYSE:LLY) Passed Our Checks, And It's About To Pay A US$0.85 Dividend

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Simply Wall St
·3 min read
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Eli Lilly and Company (NYSE:LLY) stock is about to trade ex-dividend in four days. If you purchase the stock on or after the 11th of February, you won't be eligible to receive this dividend, when it is paid on the 10th of March.

Eli Lilly's upcoming dividend is US$0.85 a share, following on from the last 12 months, when the company distributed a total of US$3.40 per share to shareholders. Last year's total dividend payments show that Eli Lilly has a trailing yield of 1.7% on the current share price of $201.77. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Eli Lilly

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Eli Lilly paid out a comfortable 44% of its profit last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Eli Lilly's earnings have been skyrocketing, up 25% per annum for the past five years. Eli Lilly is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Eli Lilly has lifted its dividend by approximately 5.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Eli Lilly is keeping back more of its profits to grow the business.

Final Takeaway

Has Eli Lilly got what it takes to maintain its dividend payments? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Overall, Eli Lilly looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 2 warning signs for Eli Lilly you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.