Last update on 2024-06-27

Eli Lilly (LLY) - Dividend Analysis (Final Score: 7/8)

Analyze Eli Lilly's (LLY) dividend performance with a score of 7 out of 8, focusing on yield, growth, and stability over 20 years. Evaluate its investment potential.

Short Analysis - Dividend Score: 7

We're running Eli Lilly (LLY) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

In our analysis of Eli Lilly (LLY) dividend policy, we evaluated 8 key criteria to determine the performance and stability of their dividends. Eli Lilly has a dividend score of 7 out of 8. Here's a rundown of the results: 1. **Dividend Yield**: Below industry average (0.7754% vs 3.29%) but compensated by substantial stock price gains from 2003 to 2023. 2. **Growth Rate**: Average annual growth rate of 6.74%, which is higher than the 5% benchmark, despite some volatility in particular years. 3. **Payout Ratio**: The average payout ratio over 20 years is a very low 2.8%, with significant volatility, indicating potential sustainability issues. 4. **Dividend Coverage by Earnings**: Fluctuating coverage ratios that show improvements in recent years but with historical inconsistency. 5. **Dividend Coverage by Cash Flow**: Analysis necessary for evaluating financial stability in paying dividends. 6. **Stable Dividends**: Stability in paying dividends, with no significant drops over 20 years, reinforces reliability. 7. **Longevity**: Consistent dividend payments for over 25 years indicate financial robustness and commitment to shareholders. 8. **Stock Repurchases**: Some inconsistency but overall a trend of reducing outstanding shares, indicating returning value to investors.

Insights for Value Investors Seeking Stable Income

Overall, Eli Lilly (LLY) presents a mix of strong growth and financial stability despite some concerns about payout ratio volatility and lower dividend yield. The consistent increase in dividends and robust stock price gains make it a potentially good investment, especially for those looking for capital appreciation and reliable income over long periods. Investors should, however, monitor their payout ratio and coverage metrics to ensure sustainable dividend policies going forward.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield - the ratio of a company's annual dividend compared to its share price - gains immense investor attention. It represents yearly dividend returns per dollar invested and finds use in comparing investments.

Eli Lilly's (LLY) current dividend yield of 0.7754% falls significantly below the industry average of 3.29%. Over the past 20 years, Eli Lilly's dividend yield has varied, momentarily surpassing the current industry average; however, it has generally trended downward. The firm's declining yield sharply contrasts with the massive fluctuations and recent downtrends seen in the industry average. While a high dividend yield might lure investors, a lower ratio could indicate Eli Lilly's burgeoning stock price - up from $70.33 in 2003 to $582.92 in 2023, suggesting substantial capital gains growth. Smart investors should observe this divergence: Although the dividend yield is modest, LLY's skyrocketing price and consistent dividend growth ($1.34 in 2003 to $4.52 in 2023) may imply a potentially lucrative reinvestment chance.

Average annual Growth Rate higher than 5% in the last 20 years?

The dividend growth rate demonstrates the annualized percentage increase in dividend payments to shareholders over a specified period. A growth rate higher than 5% over 20 years signifies robust performance and consistent returns.

Reviewing Eli Lilly's dividend growth over the last 20 years, the data reveals an average growth rate of approximately 6.74%, which is above the 5% criterion. This trend signals a strong commitment to returning value to shareholders consistently. However, the notable volatility in certain years, such as the sharp declines in 2017 and 2009, cannot be ignored. Despite these fluctuations, the overall upward trend in dividends signifies management’s confidence in substantiating long-term earnings growth. Therefore, Eli Lilly's dividend growth rate being higher than 5% in the last 20 years is a positive trend.

Average annual Payout Ratio lower than 65% in the last 20 years?

Explain the criterion for Eli Lilly (LLY) and why it is important to consider

The Average Payout Ratio is a critical metric that provides insights into a company's dividend policy and sustainability. Specifically, a payout ratio lower than 65% is generally seen as healthy, indicating that the company is not overextending itself financially to reward shareholders with dividends. This ensures ample retained earnings for other operational needs like growth and debt servicing. For Eli Lilly, examining the average payout ratio over the last 20 years gives us a long-term perspective on its dividend sustainability. The payout ratio values from 2003 to 2023 range significantly, from as low as -1072.1649% to as high as 85.5422%. While some outliers, like the unusually high negative value in 2017, may skew the average, these should be considered in the broader context. The computed average payout ratio stands at 2.792%, which is alarmingly low and suggestive of potential inconsistency in fundamental profitability or substantial irregularities in earnings over the years. Given this volatility, lingering at an average merely around 3%, Eli Lilly's dividend sustainability raises concerns, particularly when certain years hover perilously above the 65% mark (e.g., 2021 at 81.887%). Overall, the lack of stability in the payout ratio enforces a perceivably negative trend, potentially demanding a reevaluation by investors regarding dividend investments in this stock.

Dividends Well Covered by Earnings?

Coverage ratio of dividends by earnings per share indicates how comfortably a company can pay dividends from its earnings.

Historically, Eli Lilly’s dividend coverage ratio exhibits significant fluctuations. The coverage was sufficiently robust in some years ( 2008 at approx. 99%, 2015 at 91%), signifying dividends are covered by earnings. However, several years saw a coverage below 0.5 (e.g., 2009 at 50%, 2019 at 29%), indicating insufficient coverage and potential risk to dividend sustainability. Most recently, 2023 shows an improved coverage of roughly 81.8%, which is a positive trend. Consistency in maintaining a high coverage ratio is crucial for investor confidence. Overall, while there are spikes indicating potential risk, the general improvement is positive. To ascertain solid sustainability of dividends, consistent earnings growth is essential.

Dividends Well Covered by Cash Flow?

Explain the criterion for Eli Lilly (LLY) and why it is important to consider

Dividends Well Covered by Cash Flow measures the ratio of free cash flow to dividend payout, which is crucial in assessing dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Eli Lilly (LLY) and why it is important to consider

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is paramount because it signals financial health and consistent profitability. It assures income-seeking investors of a reliable income stream, which is crucial for long-term financial planning.

Dividends Paid for Over 25 Years?

Interpret the results for dividends paid for over 25 years and why it is important to consider

Eli Lilly (LLY) has consistently paid dividends over the past 25 years, increasing dividends most years, a testament to its robust financial health and commitment to returning value to shareholders. The dividend per share has increased from $0.8 in 1998 to $4.52 in 2023, which indicates strong earnings growth and a shareholder-friendly policy. By maintaining this consistency, the company demonstrates reliability, making it appealing to long-term, income-focused investors. This ongoing trend is positive as it underscores stability and consistent income for shareholders, which is crucial, especially in a market often characterized by volatility.

Reliable Stock Repurchases Over the Past 20 Years?

explain the criterion for Eli Lilly (LLY) and why it is important to consider

interpret the results: Reliable Stock Repurchases Over the Past 20 Years? Number of Share last 20 years: {'year': {'values': ['2003', '2004', '2005', '2006', '2007', '2008', '2009', '2010', '2011', '2012', '2013', '2014', '2015', '2016', '2017', '2018', '2019', '2020', '2021', '2022', '2023']}, 'numberOfShares': {'values': [1080506329, 1090421687, 1093701657, 1086816327, 1089667897, 1094499000, 1098367000, 1105813000, 1113967000, 1146493000, 1116795000, 1110627000, 1105267000, 1100875000, 1052023000, 1033667000, 931059000, 956590000, 953653000, 950182000, 949379000]}} Reliable repurchased years last 20 years: ['2006', '2013', '2014', '2015', '2016', '2017', '2018', '2019', '2021', '2022', '2023'] Average repurchased last 20 years: -0.6081