Yahoo Finance Should You Buy Quest Diagnostics Incorporated (NYSE:DGX) For Its Upcoming Dividend?
Readers hoping to buy Quest Diagnostics Incorporated (NYSE:DGX) 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Quest Diagnostics' shares on or after the 3rd of October will not receive the dividend, which will be paid on the 19th of October.
The company's upcoming dividend is US$0.66 a share, following on from the last 12 months, when the company distributed a total of US$2.64 per share to shareholders. Based on the last year's worth of payments, Quest Diagnostics stock has a trailing yield of around 2.2% on the current share price of $122.31. If you buy this business for its dividend, you should have an idea of whether Quest Diagnostics's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Quest Diagnostics
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Quest Diagnostics has a low and conservative payout ratio of just 21% of its income after tax. A useful secondary check can be to evaluate whether Quest Diagnostics generated enough free cash flow to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Quest Diagnostics has grown its earnings rapidly, up 23% a year for the past five years. Quest Diagnostics looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Quest Diagnostics has lifted its dividend by approximately 15% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is Quest Diagnostics worth buying for its dividend? We love that Quest Diagnostics is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Quest Diagnostics, and we would prioritise taking a closer look at it.
In light of that, while Quest Diagnostics has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 2 warning signs for Quest Diagnostics that you should be aware of before investing in their shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.
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