Yesterday Gilead Sciences (NASDAQ:GILD) reported its fourth quarter earnings which exceeded expectations. However, what came as a surprise was the company’s decision to pay a dividend beginning in 2015’s second quarter. Robin Washington, the CFO, stated while talking at a conference call that Gilead Sciences (NASDAQ:GILD) will pay $1.72 per share as an annual dividend. The amount approximately equals to $2.6 billion in annual payouts as per the company’s present share count.
The company saw an impressive year-over-year revenue increase of 122% which gave the company a boost of $25 billion, which is the reason behind its decision of paying dividends. Gilead (NASDAQ:GILD) is also optimistic that it will win the price war with AbbVie (NYSE:ABBV) which the two companies are having over a hepatitis C drug. The company has also announced a share buyback program of $15 billion which will be carried out in the next five year’s time.
Robin also recognized that the solid cash flow which Gilead (NASDAQ:GILD) is collecting can be used in the exploration of M&A along with the other programs. This is the first time that the company is indulging in paying dividends and there are a few things that should be overviewed to analyse if this is the best way of utilizing the company’s cash flow or not. Despite the increasingly growing revenues, Gilead’s (NASDAQ:GILD) shares has been looking undervalued amidst its peer companies.
The company’s stock is currently trading at a ratio of forward price-to-earnings of 10 which makes it the cheapest company as far as the health industry is concerned. However, despite reporting good quarterly results, the company’s shares have been stuck on the mark of $100 since previous September. In other words the market has not been favourable for the growth of Gilead (NASDAQ:GILD) probably because of Viekira Pak’s launch Hepatitis C drug.
Now that the matter seem to have resolved it looks like the management is trying to increase the company’s value by expanding its shareholder base. Investors tend to comprehend the longer term outlook of the market and since the company’s shares have been going all over the place, it is a good idea for Gilead (NASDAQ:GILD) to pay dividends and move forward. It will prove to be a good decision to utilize the company’s growing cash flow.
The company’s increase in cash flow has been a result of the supervision of its CEO John Martin. John Martin acquired a number of companies which brought variety in the biotech company’s portfolio. Although Gilead (NASDAQ:GILD) might not want to invest in the acquisition of big companies in the future that require a huge investment, however it might consider smaller deal. For the next five years the management at Gilead (NASDAQ:GILD) is allocating around 20% of its revenues to the rewards for the shareholders.
Therefore the company will not be able to explore M&A unless it is ready to indulge in its $11.7 billion in cash and cash equivalents.
