Encompass Health (NYSE:EHC) Will Pay A 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 15th of October. This means the dividend yield will be fairly typical at 1.4%.

Check out our latest analysis for Encompass Health

Encompass Health's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Encompass Health was easily earning enough to 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 expand by 35.5%. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

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. 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 5.7% 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.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Encompass Health has impressed us by growing EPS at 6.8% per 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.

In Summary

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Encompass Health that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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