Encompass Health's (NYSE:EHC) Dividend Will Be US$0.28

Encompass Health Corporation's (NYSE:EHC) investors are due to receive a payment of US$0.28 per share on 18th of April. This means the dividend yield will be fairly typical at 1.7%.

See our latest analysis for Encompass Health

Encompass Health's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, Encompass Health's earnings easily 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 fall by 3.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 29%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Encompass Health Is Still Building Its Track Record

It is great to see that Encompass Health has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2013, the dividend has gone from US$0.72 to US$1.12. This works out to be a compound annual growth rate (CAGR) of approximately 5.0% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Encompass Health to be a consistent dividend paying stock.

We Could See Encompass Health's Dividend Growing

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 8.4% per annum. Encompass Health definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Encompass Health's Dividend

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. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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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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.