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It Might Not Be A Great Idea To Buy Bristol-Myers Squibb Company (NYSE:BMY) For Its Next Dividend

Simply Wall St
·4 min read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bristol-Myers Squibb Company (NYSE:BMY) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 31st of December, you won't be eligible to receive this dividend, when it is paid on the 1st of February.

Bristol-Myers Squibb's next dividend payment will be US$0.49 per share. Last year, in total, the company distributed US$1.80 to shareholders. Based on the last year's worth of payments, Bristol-Myers Squibb stock has a trailing yield of around 3.2% on the current share price of $61.15. 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 Bristol-Myers Squibb has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Bristol-Myers Squibb

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Bristol-Myers Squibb reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 32% of its free cash flow in the past year.

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

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Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Bristol-Myers Squibb was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Bristol-Myers Squibb has lifted its dividend by approximately 4.4% a year on average.

Get our latest analysis on Bristol-Myers Squibb's balance sheet health here.

The Bottom Line

Is Bristol-Myers Squibb an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Bristol-Myers Squibb and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 3 warning signs with Bristol-Myers Squibb (at least 1 which is significant), and understanding them should be part of your investment process.

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.

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.