Bristol Myers Squibb Co. (BMY), Eli Lilly & Co. (LLY): This Pharma’s Dividend Is Safe for Now

At 50% of its free cash flow, Eli Lilly’s dividend seems safe and in line with other pharmaceutical companies. Johnson & Johnson (NYSE:JNJ) paid out 53% of its free cash flow as dividends last year, and Merck & Co., Inc. (NYSE:MRK)‘s payout ratio was even higher at 63%.

Of course, both of those companies raised their dividends last year, and Merck has already raised its dividend in 2013. Johnson & Johnson, for one, is a much more diversified company than Merck and (NYSE:MRK) Eli Lilly, and has a lot less exposure to blockbuster drugs losing patent protection. Meanwhile, Eli Lilly’s dividend has been stagnant since 2009. Clearly management saw its steep patent cliff coming and avoided getting over extended.

This year, the dividend looks safe. Eli Lilly will lose patent protection for its insulin Humalog, a $2.4 billion drug, and its current top-selling depression drug Cymbalta in December, but it expects to see revenue growth in 2013.

Next year will be more of a challenge with an entire year of Cymbalta, a $5 billion drug, experiencing generic competition. But there’s still enough of a cushion to absorb a decrease in free cash flow and pay its dividend. If worst came to worst, Eli Lilly is also sitting on $5.7 billion in cash that could be used.

For now at least, Eli Lilly’s dividend looks safe.

The article This Pharma’s Dividend Is Safe for Now originally appeared on Fool.com.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.

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