Cardinal Health, Inc. (NYSE:CAH) has pleased shareholders over the past 10 years, by paying out dividends. The company is currently worth US$16b, and now yields roughly 3.6%. Does Cardinal Health tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Cardinal Health fare?
The current trailing twelve-month payout ratio for the stock is 79%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect CAH’s payout to fall to 38% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.8%. However, EPS should increase to $4.42, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. CAH has increased its DPS from $0.56 to $1.91 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Cardinal Health generates a yield of 3.6%, which is high for Healthcare stocks but still below the market’s top dividend payers.
Taking into account the dividend metrics, Cardinal Health ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three key aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for CAH’s future growth? Take a look at our free research report of analyst consensus for CAH’s outlook.
- Valuation: What is CAH worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CAH is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.