Last update on 2024-06-27

Quest Diagnostics (DGX) - Dividend Analysis (Final Score: 7/8)

Quest Diagnostics (DGX) Dividend Analysis reveals a robust dividend yield exceeding industry average, with solid dividend coverage by earnings and cash flow.

Short Analysis - Dividend Score: 7

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

Quest Diagnostics (DGX) performed quite well in the 8-criteria dividend analysis scoring system, achieving a total score of 7 out of 8. Let's break it down: 1. **Dividend Yield Higher than the Industry Average?** Yes. DGX's dividend yield of 2.0235% is significantly higher than the industry average. 2. **Average Annual Growth Rate Higher than 5%?** No. The average annual growth rate has been less consistent and failed to meet the 5% benchmark. 3. **Average Annual Payout Ratio Lower than 65%?** Yes. The payout ratio was 22.11%, much below the 65% threshold, indicating sustainability. 4. **Dividends Well Covered by Earnings?** Yes. Their earnings have mostly been sufficient to cover their dividend payments. 5. **Dividends Well Covered by Cash Flow?** Yes. Dividends are well-covered by cash flow, despite some higher peak values. 6. **Stable Dividends Since Starting Dividends?** Mostly. DGX has shown a general increase, though there was a significant drop in 2020. 7. **Dividends Paid for Over 25 Years?** No. They've been paying dividends for 19 years, not meeting the 25-year criterion. 8. **Reliable Stock Repurchases?** Yes. DGX has consistently repurchased stock, reducing outstanding shares significantly.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Quest Diagnostics (DGX) looks like a solid option for dividend-focused investors. With a strong dividend yield, sustainable payout ratio, well-covered dividends, and reliable stock repurchases, it generally indicates financially sound practices. However, keep in mind that it hasn't met the 25-year dividend payment criterion yet, and there have been some fluctuations in dividend growth rates. If you're looking for a long-term and stable dividend payer, Quest Diagnostics is worth considering, but do monitor for any significant changes in their financial health or market conditions.

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?

The dividend yield indicates how much a company pays out in dividends each year relative to its stock price.

Quest Diagnostics (DGX) currently boasts a dividend yield of 2.0235% which surpasses the industry average of 0.39% by a significant margin. Historically, DGX's dividend yield has shown a consistent increase with some fluctuations, reaching over 2% in recent years. For instance, in 2013, the yield was notably 2.2413% and after some decreases in the subsequent years, it again reached 2.4815% in 2019. In comparison, the industry average has remained relatively low, peaking at 1.01% in 2016 but otherwise staying well below 1%. This is a positive trend for DGX, indicating that it returns a relatively higher dividend payout to investors compared to other companies in the industry. The stock price has also seen robust growth from $36.555 in 2003 to $137.88 in 2023. The higher dividend yield positions DGX as a potentially more attractive option for income-focused investors, especially in contrast to its peers.

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

The Dividend Growth Rate criterion determines whether the company's dividends have grown by at least 5% annually over the past two decades, indicating consistent and robust dividend growth.

The average dividend ratio for Quest Diagnostics over the past 20 years is 12.94%. However, the dividend ratio has shown significant fluctuations with years of no dividends and even a negative value in 2020. Achieving a 5% annual growth rate consistently seems unlikely given the erratic dividend payments. Hence, the trend may not be considered predominantly good for growth stability.

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

The average payout ratio is a critical indicator of a company's dividend sustainability. A payout ratio below 65% suggests that the company is retaining enough of its earnings to reinvest in its growth while still returning a portion to shareholders.

The analysis of Quest Diagnostics' payout ratio over the last 20 years reveals an average of approximately 22.11%, which is significantly below the 65% threshold. This consistent trend of maintaining a low payout ratio is a positive sign. It suggests that Quest Diagnostics has been adept at balancing its dividend payments with its need to reinvest in the business, ensuring both shareholder returns and potential future growth. For instance, the payout ratio peaked at 41.39% in 2019 but remained well below the critical threshold, indicating prudent financial management. Overall, this trend is favorable for long-term dividend sustainability.

Dividends Well Covered by Earnings?

This criterion assesses whether the company's dividends are adequately covered by its earnings. It's important because it reflects the company's ability to generate sufficient profits to distribute dividends consistently.

Looking at the data from 2003 to 2023, Quest Diagnostics demonstrates a generally strong ability to cover its dividends with its earnings per share (EPS). The ratio of dividends covered by earnings has mostly hovered above 0.1, indicating that earnings have mostly been sufficient to cover dividend payments. Notably, in years like 2019 and 2020, the coverage ratios were higher than 0.4, showing robust earnings relative to dividend payouts. However, there have been fluctuations in the EPS, particularly notable during 2020 and 2021 due to extraordinary earnings likely linked to pandemic-related testing demand. Although the coverage dipped to around 0.15 in 2021, the overall trend suggests solid coverage. This trend is largely positive as it indicates the company can sustain its dividend payments through its earnings.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow indicates the percentage of free cash flow that is used to pay dividends.

Examining Quest Diagnostics, the trend appears to generally indicate that dividends are well-covered by free cash flow. For instance, in 2003, no dividends were paid. In 2004, about 9.86% of free cash flow was used for dividends, this increased to around 11.1% and 10.1% in 2005 and 2006 respectively. The peak usage occurred in 2013 at 43.94%, which suggests a period of elevated dividend payout. Recent years show a downward trend settling around 36.34% coverage in 2023. This overall trend is positive because it indicates prudent cash flow management and sustainable dividend payouts, albeit with some elevated peaks that could reflect special payouts or periodic financial adjustments.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years indicate the company's commitment to returning capital to shareholders, which is crucial for income-seeking investors. Stability is particularly attractive because it reduces the risk associated with fluctuations in dividend payments.

When examining Quest Diagnostics (DGX), we note that the dividend per share has generally increased, demonstrating a positive trend. Starting from $0 in 2003, dividends rose to $0.3 in 2004 and incrementally to $2.79 in 2023. However, we must highlight that in 2020, dividends experienced a significant drop from $2.65 to $2.21 in 2019, signifying a reduction by more than 20%. This outlier moment implicates potential concerns regarding dividend stability during economic downturns or internal financial challenges, thereby complicating the otherwise stable growth trajectory.

Dividends Paid for Over 25 Years?

Determine if the company has paid dividends for over 25 years and assess the importance of such a track record in evaluating its reliability and shareholder-friendliness.

Quest Diagnostics (DGX) has started paying dividends to its shareholders starting 2004, which is a history of about 19 years up to 2023. Although it has not yet met the 25-year mark, a nearly two-decade-long dividend payment history is indicative of the company's commitment to rewarding its shareholders. This pattern is a positive trend, demonstrating reliability and potential robustness in financial health. However, it is not enough for fulfilling the 'over 25 years' criterion, meaning investors prioritizing this specific benchmark might need additional reassurance.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases reflect the company's commitment to returning capital to shareholders and can indicate strong cash flows.

Over the last 20 years, Quest Diagnostics (DGX) has shown a reliable trend in stock repurchases. The number of shares has decreased from 211,864,000 in 2003 to 112,000,000 in 2023, highlighting an average yearly reduction rate of approximately 3.1%. Out of the 21 years observed, 15 years exhibited notable share repurchases. This consistent reduction in outstanding shares is generally positive, suggesting that the company has generated sufficient cash flows to buy back its shares, thereby potentially enhancing shareholder value and signaling strong financial health.