The board of directors of Sonic Healthcare Limited (ASX:SHL) announced that it would pay a dividend of $0.44 per share on March 20th. This will result in an attractive dividend yield of 3.9%, resulting in a significant increase in shareholder returns.
Check out our latest analysis from Sonic Healthcare
The impressive dividend yield is good, but this isn't too important if you can't keep your payments up. The final payments accounted for 94% of the revenue, but cash flow was much higher. In general, cash flow is more important than revenue, and we are used to becoming sustainable in the future, especially as there is so much cash left due to reinvestment.
The following year, EPS is set to increase by 41.2%. We believe that the payment rate could be 70%, assuming that dividends will continue in line with recent trends.
The company has a sustained record of paying dividends with little fluctuation. The annual payment for the past decade was $0.67 in 2015, and the payment for the most recent fiscal year was $1.06. This means that the combined annual growth rate (CAGR) is approximately 4.7% per year during that time. We cannot deny that dividends have been very stable in the past, but growth has been fairly sluggish.
Investors can attract stocks based on the quality of their payment history. But things aren't that rosy. It is important to note that Sonic Healthcare's earnings per share have not grown from where it was five years ago.
Overall, we want to see dividends being raised all the time, but I don't think Sonic Healthcare will make a big income stock. The company brings in a lot of cash to cover its dividends, but that doesn't necessarily mean it's a big dividend stock. We are probably looking for income investments elsewhere.
Companies with stable dividend policies may benefit investors more than those struggling with a more inconsistent approach. However, there are some things investors should consider when analyzing stock performance. For example, we chose one warning sign for Sonic Healthcare that investors should consider. If you are a dividend investor, you may also want to see a curated list of high yield dividend stocks.
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