Encompass Health (NYSE:EHC) Has Affirmed Its Dividend Of US$0.28

Encompass Health Corporation (NYSE:EHC) has announced that it will pay a dividend of US$0.28 per share on the 20th of July. Based on this payment, the dividend yield on the company's stock will be 1.9%, which is an attractive boost to shareholder returns.

View our latest analysis for Encompass Health

Encompass Health's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Encompass Health's 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 1.2%. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.

Encompass Health Doesn't Have A Long Payment History

Encompass Health's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2013, the first annual payment was US$0.72, compared to the most recent full-year payment of US$1.12. This works out to be a compound annual growth rate (CAGR) of approximately 5.0% a year over that time. Encompass Health has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

Encompass Health Could Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Encompass Health has been growing its earnings per share at 6.4% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Encompass Health's Dividend

Overall, we think Encompass Health is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Encompass Health that investors need to be conscious of moving forward. 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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