Eli Lilly Offers Investors Five Consecutive Annual Dividend Hikes, 2.4% Dividend Yield (NYSE:LLY)
By: Ned Piplovic,
While forced to suspend its streak of annual dividend boosts for five years in the aftermath of the 2008 financial crisis, Eli Lilly and Company (NYSE:LLY) resumed its annual dividend hikes in 2015 and has managed to boost its annual payout amount over the past couple of years.
However, Eli Lilly had a strong record of consecutive annual dividend hikes before suspending its annual dividend hikes in 2010. Before 2009, the company had rewarded its shareholders with more than two decades of consecutive annual dividend increases. Furthermore, while failing to boost its dividend from 2010 to 2014, Eli Lilly also managed to avoid cutting its dividend payouts for more than two decades.
The company’s share has declined slightly since March 2019, which might concern existing shareholders. However, this pullback offers new investors an opportunity to take a position at discounted rates as well as an opportunity to enjoy a higher dividend yield. Income-seeking investors who are interested in the Eli Lilly stock must conduct their own research to ensure this stock’s growth potential and compatibility with their own investment portfolio goals. To claim eligibility for the next round of dividend distributions on the September 10, 2019, pay date, investors must claim stock ownership before the August 14, 2019, ex-dividend date.
Eli Lilly and Company (NYSE:LLY)
Founded in 1876 and headquartered in Indianapolis, Indiana, Eli Lilly and Company develops, manufactures and markets pharmaceutical products through two segments — Human Pharmaceutical Products and Animal Health Products. The company offers products to treat diabetes, osteoporosis, human growth hormone deficiency, pediatric growth conditions and diverse types of cancer.
Additionally, the company makes products for the treatment of depression, anxiety, fibromyalgia and chronic pain. Eli Lilly provides additional products for treatment of various disorders, such as schizophrenia, attention-deficit hyperactivity disorders (ADHD), obsessive-compulsive disorder (OCD), bulimia nervosa and panic disorders. The company’s animal health portfolio includes various vaccines, cattle feed additives, protein supplements for cows, leanness and performance enhancers for swine and cattle, antibiotics, anticoccidial agents for poultry, as well as chewable tablets that kill fleas and prevent flea infestations and heartworm diseases. As of March 31, 2019, the company has more than 33,000 employees globally and 57% of those employees work at the company’s operations outside of the United States. More than 7,500 of the company’s employees — or nearly one quarter of all employees globally — engaged in research and development across the company’s research facilities in eight countries. Additionally, Eli Lilly operates drug manufacturing facilities in eight countries. The company also conducts clinical research in 55 countries and markets its products in 120 countries around the world.
Eli Lilly delivered a fifth consecutive annual dividend hike at the beginning of 2019. The payout for the first quarter 2019 grew by 14.7% from a $0.5625 payout in the last quarter 2018 to the current $0.645 quarterly dividend distribution. This enhanced quarterly dividend payout amount corresponds to a total payout distribution of $2.58 for full-year 2019. Furthermore, with a slight share price pullback, the company’s current quarterly dividend yield has risen to 2.4%, which tracks Eli Lilly’s own five-year dividend yield of 2.38%.
However, while in line with its own average yield over the past five years, Eli Lilly’s current yield outperformed industry averages. Companies in the overall Health Care sector deliver traditionally low dividend yields. The current simple average yield of the entire sector is just 0.56%. Therefore, Eli Lilly’s current 2.4% yield is 325% higher than the sector average.
However, since the Health Care sector includes a variety of companies with significantly different business and financial models, a more equitable evaluation would be to compare Eli Lilly’s yield to the average yield of the company’s peers in the Major Drug Manufacturers industry segment. However, even in that comparison, Eli Lilly’s current 2.4% yield outperforms the 1.98% simple average yield of the company’s peers from the Major Drug Manufacturers segment.
Since beginning its current streak of consecutive annual dividend hikes five years ago, Eli Lilly has enhanced its total annual dividend payout by 32%. This advancement corresponds to an average growth rate of 5.7% per year since 2015.
While a five-year record of consecutive annual dividend hikes is noteworthy, Eli Lilly’s long-term record of dividend hikes is still impressive even with the five-year period of flat annual dividend distributions following the 2008 financial crisis. Over the past two decades, the company delivered 15 annual divided hikes and enhanced its total annual payout amount by 180% during that period. That level of advancement converts to a 5.3% average annual growth rate over the past two decades, which is just slightly lower than Eli Lilly’s current annual dividend growth rate.
Eli Lily’s current dividend payout ratio of 38% indicates that the company currently uses less than 40% of its earnings to cover its dividend distributions. In addition to sitting well within the 30% to 50% sustainable range, Eli Lilly’s current 38% payout ratio is significantly lower than the company’s own five-year payout ratio average of 103%. A payout in excess of 100% indicates that an equity pays out more money in dividends that it earns, which is unsustainable over an extended time horizon. However, the current sustainable payout ratio suggests that the current earnings should be sufficient to cover dividend payouts going forward, as well as extend the company’s current streak of annual dividend hikes into the foreseeable future.
Even with a slight share price pullback over the past few months, the company’s combined benefit from asset appreciation and dividend distributions have rewarded shareholders with a total return of nearly 25% over the past 12 months. Over the past three years, shareholders have enjoyed a 45% total return. However, shareholders have nearly doubled their investment over the past five years, with a total return of more than 90%.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.