HCA Healthcare (NYSE:HCA) Will Pay A Larger Dividend Than Last Year At US$0.56

HCA Healthcare, Inc. (NYSE:HCA) will increase its dividend on the 31st of March to US$0.56. This takes the annual payment to 0.8% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for HCA Healthcare

HCA Healthcare's Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, HCA Healthcare was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 11.7% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 11%, which we are pretty comfortable with and we think is feasible on an earnings basis.

HCA Healthcare's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2018, the dividend has gone from US$1.40 to US$2.24. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. It's encouraging to see HCA Healthcare has been growing its earnings per share at 24% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like HCA Healthcare's Dividend

Overall, a dividend increase is always good, and we think that HCA Healthcare is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for HCA Healthcare that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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