Why It Might Not Make Sense To Buy Bristol-Myers Squibb Company (NYSE:BMY) For Its Upcoming Dividend

It looks like Bristol-Myers Squibb Company (NYSE:BMY) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Bristol-Myers Squibb's shares on or after the 30th of September will not receive the dividend, which will be paid on the 1st of November.

The company's upcoming dividend is US$0.49 a share, following on from the last 12 months, when the company distributed a total of US$1.96 per share to shareholders. Based on the last year's worth of payments, Bristol-Myers Squibb stock has a trailing yield of around 3.3% on the current share price of $60.23. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Bristol-Myers Squibb

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bristol-Myers Squibb's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Bristol-Myers Squibb reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bristol-Myers Squibb has delivered an average of 4.0% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on Bristol-Myers Squibb's balance sheet health here.

Final Takeaway

Should investors buy Bristol-Myers Squibb for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Bristol-Myers Squibb despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Bristol-Myers Squibb has 3 warning signs we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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.
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