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Cardinal Health (NYSE:CAH) Is Increasing Its Dividend To US$0.50

·2-min read

Cardinal Health, Inc.'s (NYSE:CAH) dividend will be increasing to US$0.50 on 15th of July. This makes the dividend yield 3.6%, which is above the industry average.

See our latest analysis for Cardinal Health

Cardinal Health Might Find It Hard To Continue The Dividend

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Cardinal Health is unprofitable despite paying a dividend, and it is paying out 121% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

Over the next year, EPS might fall by 18.7% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

historic-dividend
historic-dividend

Cardinal Health Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from US$0.86 in 2012 to the most recent annual payment of US$1.98. This implies that the company grew its distributions at a yearly rate of about 8.7% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Cardinal Health's earnings per share has shrunk at 19% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Cardinal Health's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Cardinal Health's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good 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. Case in point: We've spotted 3 warning signs for Cardinal Health (of which 2 don't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.