Yes, Eli Lilly and Company (NYSE: LLY) pays dividends but there is more to investing in this stock than a simple “yes” answer. The Eli Lilly dividend is safe enough but it may not be right for all investors.
Dividend stocks come with different levels of risk and yield that may make them better suited for different types of investors. For example, investors looking for ultimate safety and yield may choose to invest in a Dividend King or Dividend Aristocrat instead.
What are Dividend King stocks? What is a Dividend Aristocrat? Both are types of stocks that have incredibly long histories of dividend increases. The difference between Dividend Kings vs Aristocrats is the number of years they have raised their distributions and how large the business is. Dividend Aristocrats have increased their distributions for at least 25 consecutive years and are members of the S&P 500. Dividend Kings are stocks that have been increasing their distributions for at least 50 years. Some Dividend Kings are also Dividend Aristocrats, but not all of them.
Eli Lilly is a diversified pharmaceutical company with global operations that pays a safe dividend. Eli Lilly has been increasing its dividend for only eight years but it is on track to make it a ninth. However, can it raise it into the future, long enough to make it into the Dividend Aristocrat index?
It looks like it can. The company’s portfolio and drug pipeline is strong and supports an outlook for revenue and earnings growth. If you want to build a large dividend stock portfolio, it could be a foundational holding, particularly considering the Eli Lilly stock forecast.
Eli Lilly Share Price and Company History
You can see the strength of Eli Lilly’s portfolio and pipeline in its stock price and price history. The stock has been in a steady uptrend since hitting bottom in the wake of the financial crisis of 2008 and that uptrend has gained momentum since. Most recently, the stock hit an all-time high (above $350), a more than 1,000% gain since the 2008 and 2009 lows. The risk for investors now is that the stock is very highly valued and trades at over 40x its current-year earnings consensus and 37x its next year's consensus.
When compared to the group of major dividend-paying pharmaceutical companies, the Eli Lilly stock dividend is not all that attractive. The stock trades at more than double the valuation of peers like Pfizer Inc. (NYSE: PFE), Merck & Company Inc. (NYSE: MRK), Johnson & Johnson (NYSE: JNJ) and AstraZeneca PLC (NYSE: AZN) but many of them pay a better yielding dividend as well. Pfizer is the highest-yielding stock in the group and pays 3.5% while AstraZeneca is in line with Eli Lilly’s payout. The others come in somewhere in between.
Growth and IPO
Eli Lilly got its start in May 1876 when Colonel Eli Lilly split from previous partners to found a drug manufacturing company. His first major success was gelatin coating for pills and that allowed him to expand operations. Colonel Lilly incorporated the business and gave shares to family members, then moved on to some other early successes.
Each time the funds were used to expand operations until Eli Lilly & Company was a major economic force in Indianapolis. The firm began to modernize in the early 1900s and then saw a wave of rapid growth and expansion during the World War I and World War II years. Finally, in 1952, after nearly 90 years of operations, the company went public with an IPO on the New York Stock Exchange.
Acquisitions and Investments
Eli Lilly & Company has actively acquired and invested in new pharmaceuticals and medical technology since its first day of operations. The company has made too many acquisitions to list here and is on track to acquire new businesses in the future. One of the most recent is the purchase of Akouos, which discovers and monetizes gene therapies for hearing loss patients.
On the investment end, Eli Lilly & Company operates a full-scale network of research laboratories which seek out and advance new therapies. In terms of scale, Eli Lilly employs about 8,600 people in its R&D branch, which makes up about 24% of the company. The business operates with plants in seven countries and it conducts research in more than 50.
Today, Eli Lilly is a diversified pharmaceutical company manufacturing top-line drugs in a wide variety of fields. The company’s biggest markets include diabetes, cancer, arthritis, nervous system ailments and erectile dysfunction. The company also made gains in COVID-19 research and treatment, though the benefits of that market waned in the second half of 2022.
About Eli Lilly Stock Dividends
The Eli Lilly stock dividend is worth $3.92 to investors in 2022. That amounts to a 1.15% yield and a payout ratio near 45% of the consensus earnings estimates. This puts it in good shape to continue paying the dividend without pause and provides a base of expectation for future distribution increases. The company raised its dividend for the seventh consecutive year.
Eli Lilly and Company Common Stock (LLY) Dividend History
The company has aggressively increased its dividend. The five-year compound annual growth rate (CAGR) is running near 12%, which is attractive but not sustainable over the long term. Investors may expect to see the double-digit CAGR continue over the next few years but you may expect to see the pace of increases decline over time. An annually increasing dividend payment increases the yield on the original investment and provides some protection against inflation.
The company carries some debt but it is in remarkably good financial condition. The balance sheet is net cash and comes with a very low 1.3x leverage ratio and a high 29.3x coverage ratio. In this light, the company should be able to sustain dividend increases long enough to reach Dividend Aristocrat status. The risk for investors is that patent expirations and competition could cut into the business over time although it appears to be well entrenched.
Eli Lilly Stock Splits
Eli Lilly has about 950 million shares outstanding due to a series of stock splits that doubled the share count not once, but five times, from 1971 to 1997. The Eli Lilly stock splits are offset by billions in buybacks that have occurred in the time since. Among the most recent is a $5 billion share repurchase program announced in mid-2021 that is still in effect. The buyback program is one of the most attractive features of an Eli Lilly investment and is credited for much of the stock's stellar performance.
Institutional ownership also affects the success of the stock. Institutions owned about 83% of the stock in Q4 2022 and the figure was on the rise. Net activity among the institutions was bullish over the prior year.
Eli Lilly is a Healthy Dividend Growth Stock
Despite its faults, Eli Lilly is a healthy dividend growth stock and one that offers more than just a dividend. The buyback program is key to the stock’s meteoric rise and can help support Eli Lilly stock prices in the future.
The trade-off of its lower-than-average dividend yield and high valuation occurs through its buybacks and capital appreciation, factors that also cut down on volatility. When share prices drop, the company steps in to buy them which results in a very low beta (volatility) for shareholders. This means that for every percentage point the S&P 500 moves, Eli Lilly stock only moves about $0.35. This means it will outperform during any dips and provide better returns over the long term.
FAQs
How often does Eli Lilly pay dividends?
Eli Lilly pays an annual distribution of $3.92 as of October 2022. The company pays the distribution in a quarterly dividend worth $0.98.
How many times has Eli Lilly stock split?
Eli Lilly stock splits include a five-time split; each time was a two-for-one split. Since then, the company has bought back billions in shares and supported a longstanding uptrend.
