Last update on 2024-06-27

Cardinal Health (CAH) - Dividend Analysis (Final Score: 6/8)

Analyze Cardinal Health's (CAH) dividend stability and performance. Scored 6/8 on the 8-criteria evaluation system. Explore comprehensive insights here.

Short Analysis - Dividend Score: 6

We're running Cardinal Health (CAH) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Cardinal Health (CAH) has been evaluated based on an 8-criteria scoring system for its dividend policy. The analysis reveals a dividend score of 6, indicating a generally strong performance but with areas needing attention. Key findings include: 1. **Dividend Yield**: CAH’s dividend yield (1.9831%) is higher than the industry average (0.98%). This is positive for income-focused investors. 2. **Dividend Growth Rate**: Average growth rate stands at 98.1%, well above the desired 5%. Despite some volatility, the overall trend is promising for long-term growth. 3. **Payout Ratio**: The average payout ratio over 20 years is 63.63%, slightly below the 65% threshold, supporting sustainable financial health. 4. **Dividends Cover by Earnings**: High variability in coverage ratio suggests instability, which raises concerns about payout sustainability. 5. **Dividends Cover by Cash Flow**: Despite some fluctuations, recent stable ratios (around 22%-24%) indicate a balanced dividend strategy. 6. **Stable Dividends**: CAH has a history of stable dividends since it began paying, suggesting strong financial health. 7. **Dividends Over 25 Years**: Consistent dividend payments since 1998 showcase long-term reliability. 8. **Stock Repurchases**: Regular stock buybacks over the past 20 years enhance shareholder value, with shares outstanding reduced significantly. While the company shows strong trends in dividend yield, growth, and stability, attention should be given to the fluctuations in earnings coverage.

Insights for Value Investors Seeking Stable Income

For income-focused investors, Cardinal Health (CAH) presents a promising opportunity. The company’s high dividend yield relative to the industry average and robust long-term dividend growth indicate potential for strong income generation. However, potential investors should be cautious of the fluctuations in earnings coverage and payout stability. Overall, CAH is worth considering for those seeking a blend of income and stability, with a generally positive dividend policy. Further analysis and monitoring are advised to ensure the company maintains its performance.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the cash dividends paid to shareholders relative to the market price. It indicates income level.

Cardinal Health (CAH) currently has a dividend yield of 1.9831%, which is significantly higher than the industry average of 0.98%. Historically, the company's yield has been variable, peaking notably in 2009 at 32.3046% and seeing elevated levels in 2008 and 2018, corresponding with periods of dramatic swings in stock prices. In recent years, the yield has stabilized, showing values around the 2-3% mark since 2022. A higher dividend yield than the industry is generally attractive for income-focused investors, suggesting that Cardinal Health is offering better returns relative to stock price. This trend is positive for investors looking for consistent income, especially compared to lower-yielding competitors in the industry.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate is a key metric that indicates how much the company's dividend payments have increased over time. A growth rate higher than 5% is a good indicator of strong, consistent financial health.

Cardinal Health's dividend growth rate over the course of 20 years includes periods of exceedingly high growth (e.g., 1828.7% in 2009) and occasional declines (e.g., -92.7% in 2010 and -18.4% in 2019). The average dividend growth rate is approximately 98.1%, which is well above the 5% benchmark. This indicates a very strong and promising trend in dividend growth, although the significant variation year-over-year suggests some volatility. Nevertheless, this trait could be seen as a positive for long-term investors focused on dividend income, given the overall substantial growth.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average payout ratio measures the proportion of earnings a firm pays to its shareholders in dividends. Keeping this ratio lower than 65% is crucial for financial sustainability.

From the data provided, Cardinal Health (CAH) has had an average payout ratio of 63.63% over the last 20 years, which is marginally below the 65% threshold. This is a good trend, as maintaining a payout ratio lower than 65% allows the company to reinvest a significant portion of its earnings back into the business. However, it is worth noting the occasional extreme highs and lows in specific years, such as 326.94% in 2009 and -59.18% in 2022, which indicate periods of inconsistent earnings or extraordinary payouts. Despite these outliers, the maintained average suggests a generally healthy approach to balancing dividend payments with retained earnings.

Dividends Well Covered by Earnings?

Well-covered dividends indicate financial stability. If earnings per share sufficiently cover dividend payments, it's a good sign for investors.

The ratio of dividends to earnings shows considerable variability. For instance, in 2009, this ratio peaked at approximately 3.27 while in 2020 it plummeted to -0.15. Year 2017 and 2023 showed ratios of 0.46 and 2.0, respectively. This fluctuation is a bad sign, underpinning financial instability and inconsistent payout sustainability for Cardinal Health.

Dividends Well Covered by Cash Flow?

dividends well covered by cash flow

The free cash flow aspect is instrumental in evaluating a company’s ability to sustain and grow its dividend payouts. Cardinal Health’s free cash flow (FCF) figures between 2003 and 2023 depict a generally upward trend, with notable dips in specific years like 2007 ($865.7M) and 2017 ($797M). Discernibly, the company’s dividends paid have shown a steady increase from $44.8M in 2003 to $525M in 2023. The ratio of dividends to FCF, ideally, should be low to indicate that the company is retaining adequate earnings to reinvest into the business or to cushion potential financial slowdowns. Over the years, this ratio has varied significantly. In years such as 2003 and 2004, it was extremely low (~4.6% and ~2.4%), indicating significant room for dividend growth or reinvestment. Conversely, in 2007 and 2017, the higher ratios of ~16.7% and ~72.4%, respectively, might highlight periods of financial strain or heightened shareholder returns. For more recent years, the stable ratio around 22%-24% suggests that Cardinal Health is maintaining a balanced approach, ensuring that dividends are well-covered by cash flows and leaving room for growth and potential turbulence. This trend, while featuring some high points, overall leans towards a positively managed dividend strategy. This balance is healthy for long-term investment attractiveness.

Stable Dividends Since the Company Began Paying Dividends?

Why it is important to consider stable dividend payments over the past 20 years.

Stability in dividend payments is essential as it reflects a company's ability to generate consistent cash flows and its commitment to return value to shareholders. For income-seeking investors, this stability translates into reliable income and may also be an indicator of overall financial health. Inconsistent dividends can undermine investor confidence and signal potential financial difficulties.

Dividends Paid for Over 25 Years?

Whether a company has consistently paid dividends for over 25 years.

Cardinal Health (CAH) has a track record of consistently paying dividends since 1998, showing over 25 years of commitment. This long-term trend demonstrates stability and reliability in terms of shareholder returns. During this period, dividend amounts have generally increased from $0.0602 in 1998 to $1.999 in 2023. This trend is a positive indicator for income-focused investors, reflecting the company's robust cash flow and its dedication toward rewarding shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's ongoing commitment to returning value to shareholders, which can be a sign of good financial health and management.

Cardinal Health (CAH) has demonstrated a reliable pattern of stock repurchases over the past 20 years. The number of shares outstanding has decreased consistently, from 453.6 million in 2003 to 261 million in 2023. This indicates regular share buybacks in most of the 20 years analyzed. The average repurchase trend shows a negative growth rate of -2.6938% per year, signifying a reduction in the total number of shares outstanding. Given that a decrease in the number of shares typically enhances shareholder value by increasing the earnings per share (EPS) and potentially the stock price, this trend is favorable. However, it's essential to consider the overall context, including the company's profitability and broader market conditions, to fully evaluate the impact of these repurchases.