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.

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Quest Diagnostics' Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. 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 33.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Quest Diagnostics

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. The dividend has gone from an annual total of $1.32 in 2015 to the most recent total annual payment of $3.20. This means that it has been growing its distributions at 9.3% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 4.6% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Quest Diagnostics has the option to increase the payout ratio to return more cash to shareholders.

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 of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Quest Diagnostics that you should be aware of before investing. 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.