Should You Buy Labcorp Holdings Inc. (NYSE:LH) For Its Upcoming Dividend?

Readers hoping to buy Labcorp Holdings Inc. (NYSE:LH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Labcorp Holdings investors that purchase the stock on or after the 29th of May will not receive the dividend, which will be paid on the 11th of June.

The company's next dividend payment will be US$0.72 per share. Last year, in total, the company distributed US$2.88 to shareholders. Based on the last year's worth of payments, Labcorp Holdings has a trailing yield of 1.2% on the current stock price of US$242.53. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Labcorp Holdings has been able to grow its dividends, or if the dividend might be cut.

We've discovered 1 warning sign about Labcorp Holdings. View them for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Labcorp Holdings's payout ratio is modest, at just 33% of profit. A useful secondary check can be to evaluate whether Labcorp Holdings generated enough free cash flow to afford its dividend. It paid out 21% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Labcorp Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for Labcorp Holdings

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Labcorp Holdings's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Labcorp Holdings's dividend payments are effectively flat on where they were three years ago.

To Sum It Up

Should investors buy Labcorp Holdings for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Labcorp Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Labcorp Holdings is halfway there. There's a lot to like about Labcorp Holdings, and we would prioritise taking a closer look at it.

In light of that, while Labcorp Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Labcorp Holdings that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.