Interested In Quest Diagnostics' (NYSE:DGX) Upcoming US$0.86 Dividend? You Have Three Days Left
Quest Diagnostics Incorporated (NYSE:DGX) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Quest Diagnostics investors that purchase the stock on or after the 6th of October will not receive the dividend, which will be paid on the 21st of October.
The company's next dividend payment will be US$0.86 per share, on the back of last year when the company paid a total of US$3.44 to shareholders. Looking at the last 12 months of distributions, Quest Diagnostics has a trailing yield of approximately 1.5% on its current stock price of US$231.09. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Quest Diagnostics's payout ratio is modest, at just 35% of profit. A useful secondary check can be to evaluate whether Quest Diagnostics generated enough free cash flow to afford its dividend. Fortunately, it paid out only 27% of its free cash flow in the past 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.
See our latest analysis for Quest Diagnostics
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Quest Diagnostics's earnings per share have been shrinking at 2.1% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Quest Diagnostics has lifted its dividend by approximately 8.5% a year on average.
To Sum It Up
From a dividend perspective, should investors buy or avoid Quest Diagnostics? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, Quest Diagnostics looks okay on this analysis, although it doesn't appear a stand-out opportunity.
While it's tempting to invest in Quest Diagnostics for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Quest Diagnostics 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.