Suppose you are in pursuit of a distinguished dividend growth investment opportunity. In that case, our focus turns to an undervalued dividend stock of particular interest – Bristol Myers Squibb Company, identified by the ticker symbol BMY.
As of the time of writing, the stock is trading at $50.11 per share, prompting a closer examination of its valuation and suitability for investment. This analysis will assess whether Bristol Myers Squibb merits consideration as a sound destination for our hard-earned capital.
Upon scrutiny using Fast Graphs, the company’s financial outlook appears promising, with anticipated annual returns exceeding 30% for the next two years at the current share price.
Next, we have a technical chart of BMY. We observe that it’s near a long-term trendline and support. The chart shows that it is down many red bars on the monthly time frame. It is also near the COVID-19 lows. The relative strength index (RSI) tells us that it is currently oversold.
Overview of BMY
Bristol-Myers Squibb Company is a global biopharmaceutical company with a rich history from 1858. Focused on discovering and developing innovative medicines, the company operates in therapeutic areas such as oncology, cardiovascular, immunoscience, and fibrosis. Notable drugs in their portfolio include Opdivo and Yervoy for cancer immunotherapy, Eliquis for anticoagulation, and Orencia for rheumatoid arthritis.
Bristol-Myers Squibb is dedicated to significant investments in research and development, collaborating with institutions to advance scientific discovery. Committed to corporate social responsibility, the company emphasizes initiatives related to healthcare access, diversity and inclusion, and environmental sustainability.
Currently, the stock is trading at $50.11 per share, aligning closely with the lower end of its 52-week price range, which spans from $45.15 to $57.52 per share. This positioning suggests that BMY may present an attractive opportunity for investors seeking to acquire shares at a favorable price point.
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Bristol-Myers Squibb Dividend Stock History, Growth, and Yield
We will look at BMY’s dividend history, growth, and yield. We will then determine if it’s still a good buy at current prices.
BMY is considered a Dividend Contender, a company that has increased its dividends for over ten years. In this case, BMY stock has increased its dividend for 17 consecutive years. BMY’s most recent dividend increase was 5.3%, announced in October 2023.
Dividend Growth
Additionally, according to Portfolio Insight*, BMY’s five-year dividend growth rate is about 7.3%, which is excellent. The 10-year dividend growth rate is a little lower, at ~2.6%.
It is noteworthy that Bristol-Myers Squibb stock continued to pay dividends during the most challenging period in the last 100 years. Many businesses and industries cut or suspended dividend payments during the COVID-19 pandemic. However, unlike many other stocks, BMY continued to pay its dividends and increase them. This fact alone leads me to believe in the strength of the company and the fact that management is focused and committed to the dividend policy.
Dividend Yield
Bristol-Myers Squibb offers an appealing dividend yield of approximately 4.8%, surpassing the dividend yield of the S&P 500 Index. This robust dividend yield is an attractive starting point for investors who prioritize dividend growth in their portfolios. It is also a solid choice for income-focused investors who are seeking a yield of 4.5% or higher from their investments.
The current dividend yield for BMY surpasses its 5-year average dividend yield, which stands at approximately 3.2%. This metric provides valuable insight into the company’s valuation. The relationship between stock price and dividend yield is inherently inverse, meaning that when stock prices rise, dividend yields tend to decrease, and vice versa. Investors can gauge whether the stock is undervalued or overvalued by comparing the current dividend yield to the 5-year average. In this context, the higher current yield relative to the 5-year average suggests that BMY is trading at a relatively attractive valuation.
Bristol-Myers Squibb Dividend Safety
Ensuring the safety of the current dividend is of paramount importance for dividend growth investors, as undervalued dividend stocks can sometimes become “value traps,” with stock prices continuing to decline. Two crucial metrics must be examined to assess the sustainability of annual dividend payments: Adjusted operating earnings (EPS) and Free Cash Flow (FCF) or Operating Cash Flow (OCF) per share.
Analysts’ projections indicate that BMY is expected to earn approximately $7.56 per share for fiscal year 2023, and historical accuracy in forecasting BMY’s future EPS is noted at 75%. Furthermore, the company anticipates distributing $2.28 per share in dividends over the entire year. This results in a payout ratio of roughly 30.2% based on EPS, which is excellent for a company with a high yield, and it does have room for continued dividend growth.
Aiming for a payout ratio under 60% is preferred as a prudent approach. BMY’s dividend yield ratio of approximately 4.8%, combined with expectations for future growth, supports this goal and allows the company to sustain dividend growth at a mid-single-digit rate without compromising dividend safety. Additionally, BMY maintains a dividend payout ratio of 29% based on Free Cash Flow (FCF), further affirming the dividend’s security in terms of EPS and FCF.
BMY Revenue and Earnings Growth / Balance Sheet Strength
We will now look at how well BMY performed and grew its EPS and revenue throughout the years. When valuing a company, these two metrics are at the top of my list to study. Without revenue growth, a company can’t have sustainable EPS growth and continue paying a growing dividend.
According to Portfolio Insight*, BMY’s revenue has been growing reasonably at a compound annual growth rate (CAGR) of about 10.1% for the past ten years. Net income, however, had a CAGR of ~10.5% over the same ten-year period. However, EPS has grown 17.4% annually for the past ten years and at a CAGR of 11.0% over the past five years.
Considering the company’s track record of revenue, net income, and EPS growth over the years, our evaluation will primarily focus on its valuation and dividend yield. Analysts project that Bristol-Myers Squibb will sustain a flat annual growth rate in EPS over the next five years.
Notably, despite the challenges posed by the COVID-19 pandemic over the past two years, BMY achieved a 17% increase in EPS, rising from $6.44 per share in FY2020 to $7.51 per share for FY2021. Furthermore, analysts anticipate that BMY will attain an EPS of $7.56 per share for fiscal year 2023, reflecting approximately a 2% decrease compared to FY2022.
This consistent pattern of earnings growth is a positive indicator for investors, indicating the company’s resilience and ability to continue improving its financial performance. However, the forecasted earnings for the subsequent years suggest a 4% decrease in 2024 and a 2% growth in 2025, further bolstering confidence in BMY’s future earnings potential.
Balance Sheet
Furthermore, BMY maintains a robust balance sheet with a favorable debt-to-equity ratio of 1.4 with an “A” S&P Global credit rating. This solid financial position enhances the company’s capacity to navigate significant economic challenges, as evidenced by its stability during the COVID-19 pandemic’s two-year impact. This aspect also contributes to the security of the company’s dividend payments.
BMY Stock’s Competitive Advantage
Investing in Bristol-Myers Squibb Company offers several potential competitive advantages. One key strength lies in its robust portfolio of innovative medicines, particularly in oncology. BMY has developed and commercialized notable cancer treatments like Opdivo and Yervoy, contributing to a competitive edge in the rapidly evolving pharmaceutical industry. The company’s commitment to research and development fosters a pipeline of novel therapies, positioning it for future growth.
Additionally, BMY has a global presence, allowing it to tap into diverse markets and demographics. Its strategic mergers and acquisitions, historically exemplified by the merger with Bristol-Myers in 1989, demonstrate a proactive approach to enhancing competitiveness. Furthermore, focusing on corporate social responsibility and sustainable practices can positively influence investor sentiment.
As with any investment, conducting thorough research and staying informed about the company’s financial performance, regulatory landscape, and industry trends is crucial.
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Portfolio Insight is a leading portfolio management and research platform.
- 9,000+ stocks and ETFs in its database
- Access up to dozens of metrics, 20-years of financial data from S&P Global, fair value, margin of safety, charting, etc.
- Avoid dividend cuts with the Dividend Quality Grade and screening tools.
Click here to try Portfolio Insight for free (14-day free trial).
Valuation for BMY Company
One of the valuation metrics that I like to look for is the dividend yield compared to the past few year’s histories. I also want to look for a lower price-to-earnings (P/E) ratio based on the past 5-year or 10-year average. Lastly, I like to use the Dividend Discount Model (DDM). I use a DDM analysis because a business ultimately equals the sum of the future cash flow that the business can provide.
Let’s first look at the P/E ratio. BMY has a P/E ratio of ~6.6X based on FY 2023 EPS of $7.56 per share. This multiple is excellent compared to the past 5-year average of 11.4X. If BMY reverted to a P/E of 11.4X, we would obtain a price of $86.18 per share.
Now, let’s look at the dividend yield. As I mentioned, it is currently 4.8%. There is good upside potential, as BMY’s 5-year dividend yield average is ~3.2%. For example, if BMY were to return to its 5-year dividend yield average, the price target would be $71.25.
The last item I like to look at to determine a fair price is the DDM analysis. I factored in a 9% discount rate and a long-term dividend growth rate of 5%. I use a 9% discount rate because of the higher current dividend yield. In addition, the projected dividend growth rate is conservative and in line with its past 5-year average. These assumptions give a fair price target of approximately $59.85 per share.
If we average the three fair price targets of $86.16, $71.25, and $59.85, we obtain a reasonable, fair price of $72.42 per share, giving BMY a possible upside of 44.5% from the current price of $50.11.
Final Thoughts on Bristol-Myers Squibb: A High-Yield Dividend Stock
Bristol-Myers Squibb Company (BMY) is a high-quality company that aligns well with the needs of most investors. The company offers an attractive 4.8% yield, outperforming the broader market, and boasts a commendable track record of long-term dividend growth. Historical earnings growth has been impressive, although it’s important to note that past performance does not guarantee future results. Nevertheless, considering the current stock price, BMY is an appealing investment opportunity, presenting a potentially attractive proposition for investors seeking income and growth in their portfolios.
Disclosure: I do own shares of BMY
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My name is Felix Martinez, and I am a Dividend Growth Investor who has invested in dividend growth stocks for the past seven years. I also run a YouTube channel called FiscalVoyage. I have written for SeekingAlpha.com as well as SureDividend.com. I focus on undervalued dividend growth stocks with capital return and dividend income potential. Make sure to follow me on my YouTube Channel. See you there.