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Encompass Health Corporation (NYSE:EHC) will pay a dividend of US$0.28 on the 15th of October. This payment means that the dividend yield will be 1.3%, which is around the industry average.
Encompass Health's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Encompass Health was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to expand by 12.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.
Encompass Health Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2013, the first annual payment was US$0.72, compared to the most recent full-year payment of US$1.12. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.
We Could See Encompass Health's Dividend Growing
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see Encompass Health has been growing its earnings per share at 10.0% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like Encompass Health's Dividend
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
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. As an example, we've identified 2 warning signs for Encompass Health that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
This article by Simply Wall St is general in nature. 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.
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