Investors who want to cash in on Quest Diagnostics Incorporated’s (NYSE:DGX) upcoming dividend of US$0.53 per share have only 2 days left to buy the shares before its ex-dividend date, 05 April 2019, in time for dividends payable on the 22 April 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Quest Diagnostics’s latest financial data to analyse its dividend attributes.
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does Quest Diagnostics fit our criteria?
The current trailing twelve-month payout ratio for the stock is 38%, which means that the dividend is covered by earnings. However, going forward, analysts expect DGX’s payout to fall to 31% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.4%. However, EPS should increase to $5.46, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of DGX it has increased its DPS from $0.40 to $2.12 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes DGX a true dividend rockstar.
Relative to peers, Quest Diagnostics produces a yield of 2.4%, which is high for Healthcare stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank Quest Diagnostics as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for DGX’s future growth? Take a look at our free research report of analyst consensus for DGX’s outlook.
- Valuation: What is DGX worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether DGX is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.