Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Eli Lilly and Company (NYSE:LLY) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 13th of February to receive the dividend, which will be paid on the 10th of March.
Eli Lilly's next dividend payment will be US$0.74 per share, on the back of last year when the company paid a total of US$2.96 to shareholders. Calculating the last year's worth of payments shows that Eli Lilly has a trailing yield of 2.0% on the current share price of $146.41. 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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Eli Lilly paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Eli Lilly's earnings per share have risen 17% per annum over the last five years. Eli Lilly is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Eli Lilly has increased its dividend at approximately 4.2% 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.
The Bottom Line
Has Eli Lilly got what it takes to maintain its dividend payments? Eli Lilly has an acceptable payout ratio and its earnings per share have been improving at a decent rate. In summary, Eli Lilly appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Curious what other investors think of Eli Lilly? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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