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Eli Lilly- Dividend Analysis

Even with the stock market rally of the past year there are still solid dividend paying stocks available. Many investors are concerned with another decade of slow growth and low to negative equity returns. However, one way to prepare for another decade of slow economic growth is to invest in high dividend yield stocks that have shown they can weather tough economic times and even increase their dividends while it happens.

One such company is Eli Lilly and Company (LLY). With a dividend yield of 5.0% and a history of increasing dividends over time, LLY is one of my favorite dividend paying stocks.

LLY Profile*:

Eli Lilly and Company develops, manufactures, and sells pharmaceutical products worldwide. It offers neuroscience products to treat schizophrenia, manic episodes, and bipolar maintenance; depression and diabetic peripheral neuropathic pain; attention-deficit hyperactivity disorder in children, adolescents, and adults; bulimia nervosa and obsessive-compulsive disorders; and bipolar depression and treatment-resistant depression.

*Profile taken from Yahoo Finance.


Div Yield

1 Yr Div
 Growth Rate

Annualized 5 Yr Div
 Growth Rate




Payout Ratio

Last Year in Which
 Div Did Not Increase



LLY has a very strong dividend yield of 5% and has a solid history of growing dividends over time. The company has been paying dividends since 1982 and they have cut their dividend only one time, and that was by a mere .02%. However, the dividend over the past 5 years has been sluggish at 4.5% and the dividend did not grow at all over the past year. In its favor, LLY has a relatively low payout ratio, which means there is still room for the dividend to grow even if they hit an earnings slump.

It is not necessarily obvious how investors will fare if they hold onto LLY for the next 10 years, receiving not only the dividend, but a growing dividend over time. It’s important to analyze scenarios for such a company where we look at the dividend yield and growing dividends. I ran the following scenario on our publicly available calculator called Total Returns- Dividends Vs. Price Appreciation. If we buy 1,000 shares today, apply a dividend growth rate of 4% over the next 10 years, reinvest dividends, and assume the price of the stock does not change, we get the following:



Dividend Yield

Growth of
 Dividend (Annual)





Total Return

Annual  Return

FV Dividends

FV Investment







An annual return of 5.9% when the stock price hasn’t moved is quite impressive. I’ve also included the future value of the dividend income stream compared to the future value of the initial investment. The dividends accumulated to more than $29,000 over the 10 year period. Looked at another way, the price of this stock could fall by almost 75% during this period and the investor would still break even. Now let’s take a look at what happens over 20 years:

Total Return

Annual  Return

FV Dividends

FV Investment






The annual return jumps to nearly 7% even with no growth in the stock price. Also notice that the total dollar value of the dividend payments is more than double the value of the initial investment. That is the beauty of high dividend paying stocks over time. The initial investment becomes less and less important.

Scenarios such as the ones I’ve run here can help investors understand the power of dividends over time, especially when those dividends are growing. 

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