Laboratory Corporation of America Holdings (NYSE:LH) is about to trade ex-dividend in the next 4 days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Laboratory Corporation of America Holdings' shares before the 17th of May in order to receive the dividend, which the company will pay on the 8th of June.
The company's upcoming dividend is US$0.72 a share, following on from the last 12 months, when the company distributed a total of US$2.88 per share to shareholders. Last year's total dividend payments show that Laboratory Corporation of America Holdings has a trailing yield of 1.3% on the current share price of $220.08. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Laboratory Corporation of America Holdings has been able to grow its dividends, or if the dividend might be cut.
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. That's why it's good to see Laboratory Corporation of America Holdings paying out a modest 26% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 21% 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.
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. It's not encouraging to see that Laboratory Corporation of America Holdings's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Unfortunately Laboratory Corporation of America Holdings has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
To Sum It Up
Should investors buy Laboratory Corporation of America Holdings for the upcoming dividend? While it's not great to see that earnings per share are effectively flat over the one-year period we checked, at least the payout ratios are low and conservative. In summary, while it has some positive characteristics, we're not inclined to race out and buy Laboratory Corporation of America Holdings today.
In light of that, while Laboratory Corporation of America Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Laboratory Corporation of America Holdings has 4 warning signs we think you should be aware of.
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.
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