Eli Lilly Demonstrates Superiority in Dividend Enhancement with another Significant Boost to its Dividend Allocation
Earnings-focused investors often gravitate towards stocks with lengthy histories of enhancing their payouts. However, this strategy might not always be the wisest choice. Even a prolonged series of raises might not make a stock a reliable long-term investment, especially if the enhancements are minor solely to preserve the streak. Inflation can easily nullify such minor adjustments.
On the contrary, Eli Lilly (LLY) has been showcasing a remarkable growth rate in its dividends, with more promising increases likely in the future. While many investors prospect the stock for its growth potential, it also proves to be a commendable dividend stock for long-term investment.
Eli Lilly augmenting its dividend by 15% once more
On December 9, esteemed pharmaceutical company Eli Lilly announced the authorization of a fresh $15 billion share buyback program and another substantial dividend raise. For the seventh year in a row, the company will enhance its dividend by 15%. The new quarterly dividend of $1.50 per share, payable in March, marks a substantial 167% increase from the $0.5625 per share Eli Lilly was dispensing to shareholders as recently as 2018.
Although Eli Lilly's dividend growth streak is not particularly extensive - it halted its payout increases in 2010 following the financial crisis and resumed in 2015 - this should not deter investors from anticipating significant forthcoming dividend enhancements. While Dividend Kings might boast longer streaks, this does not guarantee superior dividend growth. For instance, consider Johnson & Johnson and Becton, Dickinson, renowned healthcare stocks with dividend growth streaks exceeding half a century.
Additional dividend raises seem imminent for Eli Lilly
Purchasing a stock solely based on its past dividend growth is not sufficient. What matters is the prospect of future dividend enhancers. If a company's financial health is in decline, a dividend streak loses significance. Witness Walgreens Boots Alliance, which trimmed its dividend last year, despite being on the brink of a 50-year dividend growth streak. The enterprise's predicament remains dismal, and blindly prioritizing its past dividend growth as a justification for investment would have been a blunder - it ranks among the worst-performing stocks in the S&P 500 this year.
As for Eli Lilly, the company's health is robust, with its drug possessions like Zepbound and Mounjaro demonstrating significant potential. Zepbound is a highly powerful weight loss treatment, while Mounjaro contains the same active component (tirzepatide) and is authorized for diabetes management. Both drugs are generating sizeable profits for the business and are still in their nascent growth stages. Moreover, the company has recently obtained approval for its Alzheimer's treatment, Kisunla, which boasts the capacity to become another blockbuster drug for the company.
The future is brimming with growth opportunities for Eli Lilly, and with the stock's payout ratio still modest at 54% of earnings, room remains for the enterprise to continue dispensing substantial dividend enhancements in the near future.
Is Eli Lilly a no-brainer option for dividend investors?
Eli Lilly's dividend might appear unimpressive with a yield below 0.8%. However, the yield would be significantly higher had not the stock's astronomical 500%-plus returns over the past five years offset it. Eli Lilly can provide robust recurring income for your portfolio, albeit superior-yielding alternatives may be available within the S&P 500 index's average yield of 1.2%.
However, if you are investing for multiple years, Eli Lilly is undoubtedly an appealing buy. Both your dividend income and the stock's value can appreciably escalate, translating into lucrative returns for long-term investors. Overlooking Eli Lilly due to its low yield could be an expensive mistake for long-term investors, as the company is not only an excellent growth stock but also a reliable source of income for an extended period.
Despite the stock's yield being lower than the average in the S&P 500, investors considering a long-term perspective might find Eli Lilly attractive. The potential for both dividend income growth and stock value appreciation makes Eli Lilly an appealing choice for investors looking to build wealth over multiple years.
Given Eli Lilly's robust financial health, ongoing drug successes, and modest payout ratio, future substantial dividend enhancements seem probable. The company's dividend growth and potential to become a reliable long-term investment can be a good complement to a diversified portfolio, making it an appealing investment, especially for those with a long-term investment horizon.
