Not all dividends are created equal. At first glance a high dividend yield may look nice, but all too often it means a problem is lurking around the corner for a business. Looking at Bristol-Myers’ 3.7% dividend yield in isolation only tells half of the story, which is why investors need to have an understanding of how the market perceives a company prior to buying a stock. We can do this by comparing a few financial multiples, like price to earnings, to its peers in the industry.
Up to this point, we’ve looked at Bristol Myers Squibb Co. (NYSE:BMY)’ dividend in the past, and we’ve also seen how its stock is being perceived by the market today. However, the most important factor to consider when understanding a dividend’s future is where the company’s cash flow is heading. It’s hard to generate more cash without growing sales, so let’s take a look at what industry analysts are expecting for Bristol-Myers’ revenue growth relative to peers this year.
Foolish bottom line
While many big pharma companies saw their payout ratios increase last year, Bristol Myers Squibb Co. (NYSE:BMY)’ dropped meaningfully from 50% to around 35%. On its own, that suggests capacity to increase the dividend, but don’t be fooled — Bristol-Myers is unlikely to see a big boost in its dividend any time soon.
Last year’s fall in payout ratio is due to a big $3.5 billion payment the company received from AstraZeneca plc (ADR) (NYSE:AZN) for a new diabetes partnership. Adjusting for that one-time payment better reflects Bristol’s core business, and its payout ratio looks closer to 80%. This dividend isn’t soaring any time soon.
The article Does Bristol-Myers’ Dividend Have Room to Soar? originally appeared on Fool.com.
Brenton Flynn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.