Encompass Health (NYSE:EHC) Will Pay A Larger Dividend Than Last Year At $0.17

Encompass Health Corporation (NYSE:EHC) will increase its dividend from last year's comparable payment on the 15th of October to $0.17. Although the dividend is now higher, the yield is only 0.8%, which is below the industry average.

Check out our latest analysis for Encompass Health

Encompass Health's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, Encompass Health's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 20.2%. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.72 in 2014 to the most recent total annual payment of $0.68. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

We Could See Encompass Health's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Encompass Health has grown earnings per share at 5.3% per year over the past five years. Encompass Health definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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