Royalty Pharma (NASDAQ:RPRX) Is Increasing Its Dividend To $0.20
The board of Royalty Pharma plc (NASDAQ:RPRX) has announced that it will be paying its dividend of $0.20 on the 15th of June, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.2%, which is fairly typical for the industry.
Check out our latest analysis for Royalty Pharma
Royalty Pharma's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
Looking forward, earnings per share is forecast to fall by 100.0% over the next year. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be , which is more comfortable than the current payout ratio.
Royalty Pharma Is Still Building Its Track Record
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The annual payment during the last 3 years was $0.60 in 2020, and the most recent fiscal year payment was $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Royalty Pharma has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the last year, Royalty Pharma's EPS has fallen by 93%. Reduced dividend payments are a common consequence of declining earnings. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.
We're Not Big Fans Of Royalty Pharma's Dividend
In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 5 warning signs for Royalty Pharma you should be aware of, and 1 of them can't be ignored. Is Royalty Pharma not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
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