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The board of Quest Diagnostics Incorporated (NYSE:DGX) has announced that it will be paying its dividend of $0.71 on the 24th of April, an increased payment from last year's comparable dividend. This makes the dividend yield 2.0%, which is above the industry average.
View our latest analysis for Quest Diagnostics
Quest Diagnostics' Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Quest Diagnostics was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 13.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.
Quest Diagnostics Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was $0.68, compared to the most recent full-year payment of $2.84. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
We Could See Quest Diagnostics' Dividend Growing
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Quest Diagnostics has been growing its earnings per share at 8.6% a year over the past five years. Quest Diagnostics definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Quest Diagnostics Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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. For example, we've picked out 2 warning signs for Quest Diagnostics that investors should know about before committing capital to this stock. Is Quest Diagnostics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.