The board of Cardinal Health, Inc. (NYSE:CAH) has announced that it will pay a dividend on the 15th of April, with investors receiving US$0.49 per share. The dividend yield will be 3.4% based on this payment which is still above the industry average.
See our latest analysis for Cardinal Health
Cardinal Health’s Earnings Easily Cover the Distributions
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Prior to this announcement, the company was paying out 101% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 48%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Looking forward, earnings per share is forecast to rise by 91.2% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 54% which brings it into quite a comfortable range.
Cardinal Health Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from US$0.86 in 2012 to the most recent annual payment of US$1.96. This works out to be a compound annual growth rate (CAGR) of approximately 8.6% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. However, things aren’t all that rosy. Cardinal Health’s EPS has fallen by approximately 14% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn’t be feeling too comfortable.
Our Thoughts On Cardinal Health’s Dividend
In summary, while it’s good to see that the dividend hasn’t been cut, we are a bit cautious about Cardinal Health’s payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don’t necessarily think that makes it a great dividend stock. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we’ve identified 4 warning signs for Cardinal Health that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.