Gilead Sciences’ (NASDAQ:GILD) next dividend will be higher than last year

Gilead Sciences, Inc. (NASDAQ:GILD) will increase its dividend on March 30 to $0.73. This will bring the annual payout to 4.6% of the share price, which is higher than most companies in the industry pay.

Gilead Sciences dividend is well covered by earnings

While it’s good to have a high dividend yield, we also have to ask ourselves if the payout is sustainable. Prior to this announcement, Gilead Sciences’ dividend was comfortably covered by both cash flow and earnings. This means that a large portion of his income is kept to grow the business.

Looking ahead, earnings per share are expected to grow 1.1% over the next year. If the dividend continues to follow recent trends, we estimate the payout ratio to be 64%, which is within the range that allows us to be comfortable with the sustainability of the dividend.

NasdaqGS: GILD Historic Dividend February 13, 2022

Gilead Sciences does not have a long payment history

It’s great to see that Gilead Sciences has been paying a stable dividend for a number of years now, but we want to be a little cautious about whether that will hold true through a full economic cycle. The dividend increased from US$1.72 in 2015 to the last annual payment of US$2.92. This corresponds to a compound annual growth rate (CAGR) of approximately 7.9% per year during this period. Gilead Sciences has a good track record of dividend growth, but we would wait to see a longer track record before getting overconfident.

The dividend has limited growth potential

Investors in the company will be happy to have received dividend income for a while. Unfortunately, things are not as good as they seem. Over the past five years, it appears that Gilead Sciences’ EPS has declined by approximately 13% per year. These rapid declines certainly have the potential to limit dividend payouts if the trend continues in the future. On the positive side, earnings should gain traction over the next year, but until that turns into a trend, we won’t feel too comfortable.

Our thoughts on the Gilead Sciences dividend

Overall, we still like to see the dividend increase, but we don’t think Gilead Sciences will make a great income stock. The company generates a lot of cash, which could sustain the dividend for a while, but the balance sheet isn’t great. We would probably look elsewhere for an income investment.

Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. Yet investors must consider a host of other factors, aside from dividend payments, when analyzing a company. For example, we chose 1 warning sign for Gilead Sciences that investors should consider. If you are a dividend investor, you can also consult our curated list of high performing dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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