Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Cardinal Health, Inc. (NYSE:CAH) is about to go ex-dividend in just 4 days. You can purchase shares before the 30th of September in order to receive the dividend, which the company will pay on the 15th of October.
Cardinal Health's upcoming dividend is US$0.5 a share, following on from the last 12 months, when the company distributed a total of US$1.9 per share to shareholders. Calculating the last year's worth of payments shows that Cardinal Health has a trailing yield of 4.1% on the current share price of $47.06. If you buy this business for its dividend, you should have an idea of whether Cardinal Health's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Cardinal Health paying out a modest 42% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Cardinal Health earnings per share are up 5.9% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cardinal Health has delivered an average of 13% per year annual increase in its dividend, based on the past ten years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Has Cardinal Health got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Cardinal Health is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Cardinal Health is halfway there. It's a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for Cardinal Health? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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