Encompass Health's (NYSE:EHC) Shareholders Will Receive A Bigger Dividend Than Last Year

Encompass Health Corporation (NYSE:EHC) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of October to $0.17. Even though the dividend went up, the yield is still quite low at only 0.7%.

See our latest analysis for Encompass Health

Encompass Health's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Encompass Health was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow 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

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from $0.72 total annually to $0.68. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Encompass Health has seen EPS rising for the last five years, at 5.3% 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.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Encompass Health that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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