Labcorp Holdings Inc. (NYSE:LH) Stock Goes Ex-Dividend In Just Three Days

Labcorp Holdings Inc. (NYSE:LH) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Thus, you can purchase Labcorp Holdings' shares before the 28th of August in order to receive the dividend, which the company will pay on the 11th of September.

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. Based on the last year's worth of payments, Labcorp Holdings has a trailing yield of 0.9% on the current stock price of US$336.34. If you buy this business for its dividend, you should have an idea of whether Labcorp Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Labcorp Holdings is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 21% of its free cash flow in the last year.

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.

Check out 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?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Labcorp Holdings's 5.0% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

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 broadly unchanged compared to where they were four years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

To Sum It Up

Should investors buy Labcorp Holdings for the upcoming dividend? Labcorp Holdings has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Labcorp Holdings's dividend merits.

While it's tempting to invest in Labcorp Holdings for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Labcorp Holdings that we recommend you consider before investing in the business.

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.