Ramsay Health Care (ASX:RHC) Has Re-Affirmed Its Dividend Of AU$0.48

The board of Ramsay Health Care Limited (ASX:RHC) has announced that it will pay a dividend of AU$0.48 per share on the 31st of March. Based on this payment, the dividend yield will be 2.4%, which is fairly typical for the industry.

Check out our latest analysis for Ramsay Health Care

Ramsay Health Care's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Ramsay Health Care was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Over the next year, EPS is forecast to expand by 29.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 72% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was AU$0.52, compared to the most recent full-year payment of AU$0.97. This implies that the company grew its distributions at a yearly rate of about 6.4% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Ramsay Health Care's earnings per share has shrunk at approximately 6.8% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Ramsay Health Care's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Ramsay Health Care you should be aware of, and 1 of them can't be ignored. Is Ramsay Health Care not quite the opportunity you were looking for? Why not check out our selection of top 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.