Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see UDG Healthcare plc (LON:UDG) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 7th of January will not receive the dividend, which will be paid on the 5th of February.
UDG Healthcare's next dividend payment will be US$0.13 per share, on the back of last year when the company paid a total of US$0.17 to shareholders. Based on the last year's worth of payments, UDG Healthcare stock has a trailing yield of around 1.6% on the current share price of £7.8. If you buy this business for its dividend, you should have an idea of whether UDG Healthcare's dividend is reliable and sustainable. As a result, readers should always check whether UDG Healthcare has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. UDG Healthcare paid out a comfortable 46% of its profit last year. A useful secondary check can be to evaluate whether UDG Healthcare generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.
It's positive to see that UDG Healthcare's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. Fortunately for readers, UDG Healthcare's earnings per share have been growing at 15% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, UDG Healthcare has increased its dividend at approximately 4.5% a year on average. Earnings per share have been growing much quicker than dividends, potentially because UDG Healthcare is keeping back more of its profits to grow the business.
To Sum It Up
Should investors buy UDG Healthcare for the upcoming dividend? UDG Healthcare has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. UDG Healthcare looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of UDG Healthcare? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.