Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.
In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of the Footsie’s number two pharmaceuticals firm AstraZeneca (LSE: AZN) (NYSE: AZN.US).
Dividends past
The table below shows AstraZeneca’s five-year earnings and dividend record.
| Â | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Statutory earnings per share (EPS) | 420¢ | 519¢ | 560¢ | 733¢ | 499¢ |
| Dividend per share | 205¢ | 230¢ | 255¢ | 280¢ | 280¢ |
| Dividend growth | 9.6% | 12.2% | 10.9% | 9.8% | 0.0% |
As you can see, AstraZeneca was increasing its dividend at a good clip — an average of 10.6% a year — before holding the payout flat at 280¢ a share for 2012.
Things have got increasingly difficult for the company, with expiring patents on some major products taking their toll on revenue and profit. Nevertheless, the total of 1,250¢ a share paid in dividends over the five years was covered a healthy 2.2 times by warts-and-all statutory EPS of 2,731¢. For the latest year, despite no dividend increase, cover dropped to 1.8 times — but was a more robust 2.3 based on ‘core’ (underlying) EPS of 641¢.
An excellent dividend performance from 2008 to 2011, but the wisdom of the generosity of the increases is tainted by the failure to lift the payout for 2012.
Dividends present
AstraZeneca has so far paid an interim dividend of 90¢ for the current year, unchanged from 2012. Most analysts are expecting the final dividend also to be unchanged at 190¢ when the company announces its annual results on 6 February — giving a total payout of 280¢ for a third consecutive year.
As patent expiries continue to bite, core EPS will fall again. The analyst consensus is for a whopping 21% crash to 507¢, bringing dividend cover by core EPS down to 1.8 from 2.3.
At a share price of 3,458p, AstraZeneca’s current-year dividend (around 174p sterling expected) represents a yield of 5%.
Dividends yet to come
Many analysts are equally cautious on AstraZeneca’s 2014 dividend, penciling in another unchanged 280¢ a share. The caution is due to their forecasts of a further fall in core EPS — by around 8% to 468¢. That would mean another tick down in dividend cover — to 1.7.
AstraZeneca has further to go to get through its patent expiries than larger rival GlaxoSmithKline, and the pharma experts reckon AstraZeneca’s drugs pipeline is also weaker. Perhaps a saving grace is that AstraZeneca has scope for at least continuing to maintain the dividend by further reducing cover or even using its headroom on debt to support the payout.
While there appears to be little risk of an imminent dividend cut, there also appears little prospect of dividend increases in the immediate future. Poor visibility further ahead means dividend predictions can’t be made with any confidence.