GILD: A Big Biotech On The Verge Of An Upgrade

Gilead Sciences (Nasdaq: GILD) made a lot of headlines earlier in the year when President Trump received the company’s drug remdesivir as part of his treatment for COVID-19.

Since then, doctors have become less enthusiastic about remdesivir’s effectiveness in treating the virus, though it was an early favorite at the beginning of the pandemic.

Gilead is best known for its HIV medicines, which turned the disease from a killer to a manageable condition for most patients. Gilead also has drugs for hepatitis, various cancers, and angina, and it is the maker of flu treatment Tamiflu.

The biotech company has paid and raised its dividend for five years in a row. Shareholders now receive $0.68 per share quarterly, which comes out to a 4.5% yield.

Let’s see whether that yield is safe…

Rebounding Cash Flow

Gilead’s cash flow has shriveled in the past few years. This year’s free cash flow will be half of what it was in 2016.

Gilead Sciences' Free Cash Flow

Cash flow is expected to dip lower again this year when the final numbers are tallied but then rebound strongly in 2021. It still won’t come close to where it was in 2016, but a meaningful improvement goes a long way.

Even with the low cash flow totals of the past few years, the dividend was in okay shape. The payout ratio in 2020 will come in at around 41%, which is well within my comfort zone.

Gilead has a short but solid dividend-paying track record and a nice, low payout ratio. The only knock on the stock from a dividend safety standpoint has been falling cash flow. That puts the stock at moderate risk for a dividend cut.

But with free cash flow expected to grow in 2021, it is quite likely that Gilead will be upgraded and its dividend will be considered relatively safe.

Dividend Safety Rating: C

Dividend Grade Guide

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