Yahoo Finance Sonic Healthcare Limited (ASX:SHL) Looks Interesting, And It's About To Pay A Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sonic Healthcare Limited (ASX:SHL) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Sonic Healthcare's shares before the 7th of March in order to be eligible for the dividend, which will be paid on the 22nd of March.
The company's upcoming dividend is AU$0.42 a share, following on from the last 12 months, when the company distributed a total of AU$1.00 per share to shareholders. Based on the last year's worth of payments, Sonic Healthcare stock has a trailing yield of around 3.1% on the current share price of A$32.32. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Sonic Healthcare
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. That's why it's good to see Sonic Healthcare paying out a modest 48% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 31% 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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Sonic Healthcare's earnings per share have been growing at 16% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Sonic Healthcare has lifted its dividend by approximately 5.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Sonic Healthcare is keeping back more of its profits to grow the business.
Final Takeaway
Is Sonic Healthcare worth buying for its dividend? Sonic 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. It's a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for Sonic Healthcare? See what the 15 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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