AstraZeneca (LON:AZN) Has Announced That It Will Be Increasing Its Dividend To $1.68

The board of AstraZeneca PLC (LON:AZN) has announced that it will be paying its dividend of $1.68 on the 24th of March, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.1%, which is in line with the average for the industry.

View our latest analysis for AstraZeneca

AstraZeneca's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend was quite easily covered by AstraZeneca's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 96.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $2.80 in 2015 to the most recent total annual payment of $3.10. This implies that the company grew its distributions at a yearly rate of about 1.0% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. AstraZeneca has impressed us by growing EPS at 35% per year over the past five years. AstraZeneca is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

AstraZeneca Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for AstraZeneca that investors need to be conscious of moving forward. Is AstraZeneca not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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