Baxter International (NYSE:BAX) Has Announced A Dividend Of $0.29

The board of Baxter International Inc. (NYSE:BAX) has announced that it will pay a dividend on the 2nd of October, with investors receiving $0.29 per share. This makes the dividend yield 2.4%, which will augment investor returns quite nicely.

View our latest analysis for Baxter International

Baxter International's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Despite not being profitable, Baxter International is paying out most of its free cash flow as a dividend. Generally it is unsustainable for a company to be paying a dividend while unprofitable, and with limited reinvestment into the business growth may be slow.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 9.5%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was $1.80, compared to the most recent full-year payment of $1.16. This works out to be a decline of approximately 4.3% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Baxter International's EPS has fallen by approximately 38% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Baxter International you should be aware of, and 1 of them is a bit unpleasant. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.