Gilead Sciences' (NASDAQ:GILD) Upcoming Dividend Will Be Larger Than Last Year's

The board of Gilead Sciences, Inc. (NASDAQ:GILD) has announced that the dividend on 28th of March will be increased to $0.79, which will be 2.6% higher than last year's payment of $0.77 which covered the same period. This makes the dividend yield about the same as the industry average at 3.0%.

See our latest analysis for Gilead Sciences

Gilead Sciences' Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 800% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 37%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 48%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Gilead Sciences Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.72 in 2015 to the most recent total annual payment of $3.08. This means that it has been growing its distributions at 6.0% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Over the past five years, it looks as though Gilead Sciences' EPS has declined at around 38% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Gilead Sciences' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Gilead Sciences' payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 5 warning signs for Gilead Sciences that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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