Cardinal Health (NYSE:CAH) Has Announced That It Will Be Increasing Its Dividend To $0.5056

Cardinal Health, Inc.'s (NYSE:CAH) periodic dividend will be increasing on the 15th of July to $0.5056, with investors receiving 1.0% more than last year's $0.501. This takes the dividend yield to 2.0%, which shareholders will be pleased with.

Check out our latest analysis for Cardinal Health

Cardinal Health's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Cardinal Health was paying out 90% of earnings, but a comparatively small 24% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Cardinal Health Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.21 in 2014 to the most recent total annual payment of $2. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. 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.

Cardinal Health Might Find It Hard To Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. Cardinal Health has impressed us by growing EPS at 196% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Cardinal Health is not retaining those earnings to reinvest in growth.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payments look pretty sustainable with good earnings coverage and a reasonable track record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Cardinal Health 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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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.