Eli Lilly (NYSE:LLY) Has Announced That It Will Be Increasing Its Dividend To $1.30

Eli Lilly and Company's (NYSE:LLY) dividend will be increasing from last year's payment of the same period to $1.30 on 8th of March. Although the dividend is now higher, the yield is only 0.8%, which is below the industry average.

Check out our latest analysis for Eli Lilly

Eli Lilly's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Eli Lilly's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 340% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 24%, which is in a comfortable range for us.

Eli Lilly 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 $1.96 in 2014 to the most recent total annual payment of $5.20. This means that it has been growing its distributions at 10% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Eli Lilly has seen EPS rising for the last five years, at 73% per annum. However, Eli Lilly isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Our Thoughts On Eli Lilly's Dividend

Overall, we always like to see the dividend being raised, but we don't think Eli Lilly will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Eli Lilly that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.