Bristol-Myers Squibb (NYSE:BMY) Is Paying Out A Larger Dividend Than Last Year

The board of Bristol-Myers Squibb Company (NYSE:BMY) has announced that it will be increasing its dividend by 3.3% on the 3rd of February to $0.62, up from last year's comparable payment of $0.60. This takes the dividend yield to 4.3%, which shareholders will be pleased with.

View our latest analysis for Bristol-Myers Squibb

Estimates Indicate Bristol-Myers Squibb's Dividend Coverage Likely To Improve

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. While Bristol-Myers Squibb is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 55%, which makes us pretty comfortable with the sustainability of the dividend.

Bristol-Myers Squibb Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $1.44 in 2014 to the most recent total annual payment of $2.40. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Although it's important to note that Bristol-Myers Squibb's 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.

Our Thoughts On Bristol-Myers Squibb's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Bristol-Myers Squibb's 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 be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Bristol-Myers Squibb that investors need to be conscious of moving forward. 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.