U.S. Markets open in 8 hrs 3 mins

Gilead Sciences, Inc. (NASDAQ:GILD)'s Could Be A Buy For Its Upcoming Dividend

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Gilead Sciences, Inc. (NASDAQ:GILD) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 12th of September will not receive the dividend, which will be paid on the 27th of September.

Gilead Sciences's upcoming dividend is US$0.63 a share, following on from the last 12 months, when the company distributed a total of US$2.52 per share to shareholders. Looking at the last 12 months of distributions, Gilead Sciences has a trailing yield of approximately 3.9% on its current stock price of $64.82. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Gilead Sciences has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Gilead Sciences

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. Gilead Sciences paid out more than half (52%) 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. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Gilead Sciences'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.

NasdaqGS:GILD Historical Dividend Yield, September 8th 2019

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. Fortunately for readers, Gilead Sciences's earnings per share have been growing at 18% a year for the past five years. Gilead Sciences is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some 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 last 4 years, Gilead Sciences has lifted its dividend by approximately 10% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Gilead Sciences worth buying for its dividend? Gilead Sciences's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

Wondering what the future holds for Gilead Sciences? See what the 23 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.