Cardinal Health (NYSE:CAH) Has Affirmed Its Dividend Of US$0.49
Cardinal Health, Inc. (NYSE:CAH) will pay a dividend of US$0.49 on the 15th of April. The dividend yield will be 3.6% based on this payment which is still above the industry average.
View our latest analysis for Cardinal Health
Cardinal Health's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Cardinal Health's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Over the next year, EPS is forecast to expand by 90.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 54% which would be quite comfortable going to take the dividend forward.
Cardinal Health Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. 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. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Cardinal Health's earnings per share has shrunk at 14% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 4 warning signs for Cardinal Health that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
