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The (Almost) Unforgivable Sin

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The (Almost) Unforgivable Sin

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

Bristol Myers Squibb (NYSE: BMY) is a $100 billion market cap pharmaceutical company that has raised its dividend every year since 2010 and has paid one since 1933.

The stock currently yields 4.5%. But can it continue to pay its $0.57 per share quarterly dividend despite an expected decline in its free cash flow next year?

Bristol Myers Squibb has 35 approved drugs, including well-known names like blood thinner Eliquis and cancer fighters Opdivo and Revlimid.

This year, revenue and earnings are forecast to dip, though free cash flow is projected to grow considerably from 2022's total. However, next year, while earnings are expected to recover, free cash flow will drop, according to Wall Street analysts.

Chart: The (Almost) Unforgivable Sin: Falling Free Cash Flow
 

In the Safety Net model, there is no sin bigger than falling cash flow.

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However, the drug giant's other numbers are very solid. The company will likely pay out about $4.6 billion in dividends this year, which is just 30% of its expected free cash flow. Next year's predicted $4.8 billion in dividend payouts should result in a payout ratio of just 33%.

With all of this in mind, how do you feel about the company's ability to pay its dividend?

Is a decline in free cash flow a deal-breaker for you?

Let me know how you'd grade Bristol Myers Squibb's dividend safety in the comments section on the next page, and then scroll up to reveal my grade.

REVEAL MY GRADE
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