Cardinal Health (NYSE:CAH) Is Due To Pay A Dividend Of $0.5056

Cardinal Health, Inc. (NYSE:CAH) has announced that it will pay a dividend of $0.5056 per share on the 15th of October. Based on this payment, the dividend yield will be 1.8%, which is fairly typical for the industry.

View our latest analysis for Cardinal Health

Cardinal Health's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite easily covered by Cardinal Health's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 141.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

Cardinal Health Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the dividend has gone from $1.21 total annually to $2.02. This works out to be a compound annual growth rate (CAGR) of approximately 5.3% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Is Doubtful

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. In the last five years, Cardinal Health's earnings per share has shrunk at approximately 5.1% 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. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Cardinal Health's Dividend

Overall, a consistent dividend is a good thing, and we think that Cardinal Health has the ability to continue this into the future. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Cardinal Health that investors need to be conscious of moving forward. Is Cardinal Health 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.