Gilead Sciences (NASDAQ:GILD) Will Pay A Larger Dividend Than Last Year At $0.75

Gilead Sciences, Inc. (NASDAQ:GILD) will increase its dividend on the 30th of March to $0.75, which is 2.7% higher than last year's payment from the same period of $0.73. This makes the dividend yield 3.4%, which is above the industry average.

View our latest analysis for Gilead Sciences

Gilead Sciences' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Gilead Sciences was paying out 80% of earnings, but a comparatively small 40% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to rise by 52.3% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 57% which would be quite comfortable going to take the dividend forward.

Gilead Sciences Doesn't Have A Long Payment History

Gilead Sciences' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of $1.72 in 2015 to the most recent total annual payment of $2.92. This means that it has been growing its distributions at 6.8% per annum over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

Gilead Sciences May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Although it's important to note that Gilead Sciences' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Gilead Sciences is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Gilead Sciences that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.