Perrigo's (NYSE:PRGO) Shareholders Will Receive A Bigger Dividend Than Last Year

Perrigo Company plc's (NYSE:PRGO) periodic dividend will be increasing on the 25th of March to $0.29, with investors receiving 5.1% more than last year's $0.276. This takes the dividend yield to 4.6%, which shareholders will be pleased with.

View our latest analysis for Perrigo

Perrigo's Future Dividend Projections Seem Positive

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Perrigo isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This is quite a strong warning sign that the dividend may not be sustainable.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 59%, which makes us pretty comfortable with the sustainability of the dividend.

Perrigo Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.42 in 2015, and the most recent fiscal year payment was $1.1. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the past five years, it looks as though Perrigo's EPS has declined at around 47% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Perrigo 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. We don't think Perrigo is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Perrigo you should be aware of, and 1 of them is a bit unpleasant. Is Perrigo not quite the opportunity you were looking for? Why not check out our selection of top 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.