Roche Holding’s (VTX:ROG) Upcoming Dividend Will Be Larger Than Last Year’s

Roche Holding AG’s (VTX:ROG) dividend will be increasing from last year’s payment of the same period to CHF9.70 on 31st of March. This makes the dividend yield 3.3%, which is above the industry average.

Check out our latest analysis for Roche Holding

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Roche Holding’s dividend made up quite a large proportion of earnings but only 51% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 105.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 46% which would be quite comfortable going to take the dividend forward.

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was CHF8.00, compared to the most recent full-year payment of CHF9.70. This works out to be a compound annual growth rate (CAGR) of approximately 1.9% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The company’s investors will be pleased to have been receiving dividend income for some time. Let’s not jump to conclusions as things might not be as good as they appear on the surface. It’s not great to see that Roche Holding’s earnings per share has fallen at approximately 8.0% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

In summary, while it’s always good to see the dividend being raised, we don’t think Roche Holding’s payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don’t necessarily think that makes it a great dividend stock. We don’t think Roche Holding is a great stock to add to your portfolio if income is your focus.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve picked out 4 warning signs for Roche Holding that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.