Sonic Healthcare (ASX:SHL) Will Pay A Larger Dividend Than Last Year At A$0.60

The board of Sonic Healthcare Limited (ASX:SHL) has announced that it will be paying its dividend of A$0.60 on the 21st of September, an increased payment from last year's comparable dividend. This takes the annual payment to 2.8% of the current stock price, which is about average for the industry.

View our latest analysis for Sonic Healthcare

Sonic Healthcare's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, Sonic Healthcare's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 47.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 64%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Sonic Healthcare Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was A$0.59 in 2012, and the most recent fiscal year payment was A$1.00. This implies that the company grew its distributions at a yearly rate of about 5.4% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Sonic Healthcare has been growing its earnings per share at 25% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Sonic Healthcare Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Sonic Healthcare that you should be aware of before investing. Is Sonic Healthcare 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.