Quest Diagnostics (NYSE:DGX) Has Announced That It Will Be Increasing Its Dividend To $0.75

Quest Diagnostics Incorporated (NYSE:DGX) will increase its dividend from last year's comparable payment on the 22nd of April to $0.75. This takes the dividend yield to 2.4%, which shareholders will be pleased with.

Check out our latest analysis for Quest Diagnostics

Quest Diagnostics' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Quest Diagnostics' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 25.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.

Quest Diagnostics 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 annual payment back then was $1.20, compared to the most recent full-year payment of $3.00. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

We Could See Quest Diagnostics' Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Quest Diagnostics has been growing its earnings per share at 7.1% a year over the past five years. Quest Diagnostics definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Quest Diagnostics Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Quest Diagnostics is a strong income stock thanks to its track record and growing earnings. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Quest Diagnostics that investors should know about before committing capital to this stock. Is Quest Diagnostics 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.