Quest Diagnostics (NYSE:DGX) Will Pay A Larger Dividend Than Last Year At $0.80

The board of Quest Diagnostics Incorporated (NYSE:DGX) has announced that it will be paying its dividend of $0.80 on the 21st of April, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 1.9%, providing a nice boost to shareholder returns.

View our latest analysis for Quest Diagnostics

Quest Diagnostics' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Quest Diagnostics was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 34.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

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Quest Diagnostics Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $1.32 in 2015, and the most recent fiscal year payment was $3.20. This implies that the company grew its distributions at a yearly rate of about 9.3% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Quest Diagnostics May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 4.6% a year for the past five years, which isn't massive but still better than seeing them shrink. If Quest Diagnostics is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

We Really Like Quest Diagnostics' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

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 1 warning sign for Quest Diagnostics that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.