Roche Holding's (VTX:ROG) Shareholders Will Receive A Bigger Dividend Than Last Year

Roche Holding AG's (VTX:ROG) dividend will be increasing from last year's payment of the same period to CHF9.60 on 18th of March. This makes the dividend yield 4.3%, which is above the industry average.

See our latest analysis for Roche Holding

Roche Holding's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Roche Holding's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 42.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.

Roche Holding Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was CHF7.80, compared to the most recent full-year payment of CHF9.60. This means that it has been growing its distributions at 2.1% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 3.2% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 3.2% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

We Really Like Roche Holding's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Roche Holding that investors should know about before committing capital to this stock. Is Roche Holding 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.