It looks like Gilead Sciences, Inc. (NASDAQ:GILD) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 14th of September in order to be eligible for this dividend, which will be paid on the 29th of September.
Gilead Sciences’s upcoming dividend is US$0.68 a share, following on from the last 12 months, when the company distributed a total of US$2.72 per share to shareholders. Looking at the last 12 months of distributions, Gilead Sciences has a trailing yield of approximately 4.2% on its current stock price of $64.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Gilead Sciences reported a loss last year, so it’s not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Gilead Sciences didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 39% of its free cash flow in the past year.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Gilead Sciences was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Gilead Sciences has delivered an average of 9.6% per year annual increase in its dividend, based on the past five years of dividend payments.
We update our analysis on Gilead Sciences every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is Gilead Sciences worth buying for its dividend? It’s hard to get used to Gilead Sciences paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Gilead Sciences has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that being said, if you’re still considering Gilead Sciences as an investment, you’ll find it beneficial to know what risks this stock is facing. For instance, we’ve identified 2 warning signs for Gilead Sciences (1 can’t be ignored) you should be aware of.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.