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Baxter International (NYSE:BAX) Has Announced A Dividend Of $0.29

The board of Baxter International Inc. (NYSE:BAX) has announced that it will pay a dividend of $0.29 per share on the 1st of July. This means the annual payment is 3.5% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Baxter International

Baxter International Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Despite not being profitable, Baxter International is paying out most of its free cash flow as a dividend. Generally paying a dividend without making profits isn't a great idea and we are also worried that there is limited reinvestment into the business.

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The next 12 months is set to see EPS grow by 141.5%. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

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historic-dividend

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from $1.96 total annually to $1.16. The dividend has shrunk at around 5.1% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Baxter International's earnings per share has shrunk at 49% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Baxter International (of which 1 is significant!) you should know about. 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.