Is It Worth Considering U.S. Physical Therapy, Inc. (NYSE:USPH) For Its Upcoming Dividend?
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see U.S. Physical Therapy, Inc. (NYSE:USPH) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase U.S. Physical Therapy's shares before the 17th of August in order to be eligible for the dividend, which will be paid on the 8th of September.
The company's next dividend payment will be US$0.43 per share, and in the last 12 months, the company paid a total of US$1.72 per share. Last year's total dividend payments show that U.S. Physical Therapy has a trailing yield of 1.6% on the current share price of $109.6. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for U.S. Physical Therapy
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether U.S. Physical Therapy generated enough free cash flow to afford its dividend. Fortunately, it paid out only 36% of its free cash flow in the past 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that U.S. Physical Therapy's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
U.S. Physical Therapy also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. U.S. Physical Therapy has delivered an average of 17% per year annual increase in its dividend, based on the past 10 years of dividend payments.
Final Takeaway
Is U.S. Physical Therapy worth buying for its dividend? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, U.S. Physical Therapy doesn't stand out from a dividend perspective. To summarise, U.S. Physical Therapy looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you're not too concerned about U.S. Physical Therapy's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 3 warning signs for U.S. Physical Therapy that you should be aware of before investing in their shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.
