Eli Lilly (NYSE:LLY) Is Increasing Its Dividend To $1.30

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

See our latest analysis for Eli Lilly

Eli Lilly's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. At the time of the last dividend payment, Eli Lilly was paying out a very large proportion of what it was earning and 340% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 24% which is fairly sustainable.

Eli Lilly Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from $1.96 total annually to $5.20. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Eli Lilly Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Eli Lilly has impressed us by growing EPS at 73% per year over the past five years. 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. Although they have been consistent in the past, we think the payments are a little high to be sustained. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Eli Lilly that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.