Sonic Healthcare (ASX:SHL) Will Pay A Dividend Of A$0.44

The board of Sonic Healthcare Limited (ASX:SHL) has announced that it will pay a dividend of A$0.44 per share on the 20th of March. This will take the dividend yield to an attractive 3.8%, providing a nice boost to shareholder returns.

Check out our latest analysis for Sonic Healthcare

Sonic Healthcare's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Sonic Healthcare was paying out 94% of earnings, but a comparatively small 71% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 41.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Sonic Healthcare Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was A$0.67, compared to the most recent full-year payment of A$1.06. This implies that the company grew its distributions at a yearly rate of about 4.7% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Although it's important to note that Sonic Healthcare's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Sonic Healthcare that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.