Sonic Healthcare (ASX:SHL) Will Pay A Larger Dividend Than Last Year At A$0.62

The board of Sonic Healthcare Limited (ASX:SHL) has announced that it will be paying its dividend of A$0.62 on the 21st of September, an increased payment from last year's comparable dividend. This will take the annual payment to 3.2% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Sonic Healthcare

Sonic Healthcare's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Sonic Healthcare was paying out 71% of earnings, but a comparatively small 50% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 21.8%. If the dividend continues on this path, the payout ratio could be 62% by next year, which we think can be pretty sustainable going forward.

Sonic Healthcare Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was A$0.59, compared to the most recent full-year payment of A$1.04. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Sonic Healthcare Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Sonic Healthcare has grown earnings per share at 5.2% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Sonic Healthcare Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Sonic Healthcare that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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