For investors looking for dependable income, a methodical screening process can point to stocks that provide more than a high stated yield. A typical technique uses a filter for firms with a solid basic dividend score, which assesses the durability and increase of payments, while also checking that the core business is earning money and financially sound enough to continue those payments for the long run. This process tries to steer clear of high-yield stocks that are frequently in trouble and could reduce their dividends.
One stock that appears from this kind of process is Bristol-Myers Squibb Co (NYSE:BMY), a worldwide biopharmaceutical leader. The firm's collection of products contains important treatments in cancer, immunology, and heart diseases, creating a base of repeat revenue.
Dividend Attraction: Yield and Increase
For investors concentrating on income, BMY's dividend characteristics present a strong case. The firm now provides a considerable yield, which is notable both in its industry and compared to wider market measures.
- Notable Yield: BMY's dividend yield of 4.21% is much greater than the industry average of about 1.18% and the S&P 500's average yield near 1.82%. This puts it in the high group of dividend payers in the pharmaceuticals industry.
- Dependable and Increasing Payment: The firm has built a dependable history, giving dividends for at least ten years without a decrease in the last three years. More notably, it has increased its dividend at a yearly rate close to 12% over the past five years, showing a dedication to giving back greater amounts of capital to shareholders.
This pairing of a high initial yield and a solid record of increase is key to a sound dividend investment plan, as it aims for both present income and a guard against inflation over time.
Assessing Dividend Durability
A high yield is only useful if it can be maintained. This is where basic study beyond the yield number becomes important. BMY's detailed basic report points out both advantages and a main area to watch.
- Earnings Back Payments: The firm's solid earnings are a major support for the dividend. BMY receives high scores for its profit margins and returns on capital. Its operating margin above 33% and return on equity over 32% are with the best in the industry, signaling a very efficient and profitable way of operating. This strong earnings power creates the profits needed to finance dividend payments.
- A Point on Payout Ratio: The main worry about durability is the payout ratio. BMY now pays out more than 80% of its net income as dividends, a level that allows little flexibility if profits come under strain. Also, experts predict a small drop in earnings per share in the next few years, which could test the recent speed of dividend increase if those predictions happen. Investors need to balance the solid past earnings against this future-looking measure.
Financial Condition and Price Context
The screening process also calls for "acceptable" financial condition, which serves as a cushion during economic or firm-specific challenges. BMY's condition rating shows a varied image.
- Stability and Cash Generation: On a good note, the firm's free cash flow is solid enough that it could in theory repay all its debt in slightly more than three years, a good standing compared to most industry competitors. Its Return on Invested Capital also clearly beats its cost of capital, meaning it is producing real value for shareholders.
- Debt and Cash Availability Points: The study mentions a high amount of financial debt, with a debt-to-equity ratio that is raised relative to the industry. While controllable given its cash flow, it does show dependence on outside funding. Current and quick cash ratios are sufficient but not outstanding.
From a price angle, BMY seems low-cost. Its Price-to-Earnings ratio below 10 is a reduction compared to both the wider market and its industry competitors, possibly giving a safety buffer for investors taking the position.
A Prospect for Income-Centered Portfolios
Bristol-Myers Squibb shows the sort of firm a dividend screening process hopes to find: an earning market frontrunner with a high, well-backed yield and a record of lifting its payment. The low price adds to its attraction. Still, the raised payout ratio and high financial debt are significant points for investors to watch carefully, as they are the main dangers to the dividend's long-term increase path.
For investors wanting to examine other firms that meet similar standards of solid dividend scores paired with acceptable profitability and financial condition, the Best Dividend Stocks screen gives a changing list of possible prospects for more study.
Disclaimer: This article is for information only and is not financial guidance, a suggestion, or an offer to buy or sell any security. Investing has risk, including the possible loss of original capital. Investors should do their own study and think about their personal money situation before making any investment choices.
