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

Encompass Health Corporation (NYSE:EHC) will pay a dividend of US$0.28 on the 18th of April. Based on this payment, the dividend yield will be 1.7%, which is fairly typical for the industry.

View our latest analysis for Encompass Health

Encompass Health's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, Encompass Health's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 3.1%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 29%, which is comfortable for the company to continue in the future.

Encompass Health Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from US$0.72 in 2013 to the most recent annual 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 been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

Encompass Health Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Encompass Health has seen EPS rising for the last five years, at 8.3% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Encompass Health's prospects of growing its dividend payments in the future.

Encompass Health Looks Like A Great Dividend Stock

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 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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