The board of Encompass Health Corporation (NYSE:EHC) has announced that it will pay a dividend on the 20th of July, with investors receiving US$0.28 per share. This means the annual payment is 1.7% of the current stock price, which is above the average for the industry.
Encompass Health’s Earnings Easily Cover the Distributions
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Before making this announcement, Encompass Health was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to expand by 4.7%. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.
Encompass Health Is Still Building Its Track Record
Encompass Health’s dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2013, the dividend has gone from US$0.72 to US$1.12. This means that it has been growing its distributions at 5.0% per annum over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.
Encompass Health Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. We are encouraged to see that Encompass Health has grown earnings per share at 6.4% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Encompass Health’s prospects of growing its dividend payments in the future.
Our Thoughts On Encompass Health’s Dividend
Overall, we think Encompass Health is a solid choice as a dividend stock, even though the dividend wasn’t raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company’s dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we’ve identified 2 warning signs for Encompass Health that investors need to be conscious of moving forward. Is Encompass Health not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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