Last update on 2024-06-27

Laboratory Corp of America Holdings (LH) - Dividend Analysis (Final Score: 6/8)

Analyze Laboratory Corp of America Holdings (LH) dividend performance with an 8-criteria scoring system - Final Score: 6/8. Discover LH's dividend potential.

Short Analysis - Dividend Score: 6

We're running Laboratory Corp of America Holdings (LH) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Laboratory Corp of America Holdings (LH) yielded a score of 6 out of 8, indicating a generally stable and promising dividend policy, albeit with some areas of concern. Despite only initiating dividend payments in 2021, LH's current dividend yield of 1.1778% surpasses the industry average of 0.39%. However, due to its recent introduction, there's insufficient data to establish a consistent, long-term growth rate. The payout ratio remains significantly low, often below 65%, presenting a sustainable policy. Though the dividends were well covered by both earnings and cash flow recently, the short history raises concerns about long-term stability. LH has a commendable history of stock repurchases, enhancing shareholder value over the long term.

Insights for Value Investors Seeking Stable Income

Considering the high dividend yield compared to its peers and the company's strong cash flow and low payout ratio, LabCorp appears to maintain a well-balanced policy on dividends and share repurchases. However, potential investors should be cautious due to the short history of dividend payments. For those comfortable with some degree of risk associated with newer dividend policies, LabCorp may be a worthwhile investment. It may be better suited for mid-to-long-term investments where the potential for dividend growth can be more accurately assessed over time.

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 and why it is important to consider

Laboratory Corp of America Holdings (LH) currently has a dividend yield of 1.1778%, which is substantially higher than the industry average of 0.39%. This suggests that LH is offering relatively attractive dividends compared to its peers. Although the company only commenced dividend payments recently in 2021, the steady increase to the current value indicates good growth potential. The pattern also points to management's commitment to return value to shareholders through dividends. However, investors should carefully consider other financial metrics and the company's overall strategy when evaluating if LH's higher yield aligns with their investment goals.

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

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend payouts.

Laboratory Corp of America Holdings (LH) has commenced its dividend payments recently, as evident from the large lump-sum amount of $44.2643 in 2023 compared to the previous 20 years where no dividends were paid. With an average dividend ratio of 2.1078%, it is crucial to note that such abrupt introduction of a dividend might not indicate a stable dividend growth rate, especially given the company's history of not paying any dividends. While we cannot calculate a 20-year growth rate accurately due to the absence of prior data, an initial yield of over 5% (44.2643 implies a larger dividend payout than this) can be impressive but may also imply a potential lack of long-term consistency.

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

Describe what the Average Payout Ratio is and why it is a critical metric for evaluating dividends.

The payout ratio is the percentage of earnings distributed as dividends to shareholders. An average payout ratio lower than 65% is generally favorable since it indicates a company's earnings are sufficient to cover its dividend payments while also retaining enough for growth and investment. Laboratory Corp of America Holdings (LH), with an average payout ratio of approximately 3.29% over the past 20 years (surpassing the 65% threshold), shows a highly sustainable dividend policy. This low ratio affirms LH's focus on reinvestment and financial stability, minimizing the risk to dividend continuity and signaling a strong commitment to future growth. The jump in payout ratio to 13.22% in 2022 and 55.78% in 2023, however, indicates an increasing dividend commitment. While still within acceptable bounds for now, continued upward trends might necessitate scrutiny regarding the sustainability of this trajectory.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings indicates a company's ability to sustain and potentially increase its dividend payouts from its profits.

From 2003 to 2021, Laboratory Corp of America Holdings (LH) did not issue any dividends, as indicated by the dividend per share of zero. This means that there was no direct payout to shareholders in the form of dividends which were entirely covered by the earnings per share during this period. In 2022 and 2023, the company started paying dividends, but the coverage ratio of dividends by earnings was low for 2022 at 0.1322 and slightly better but still low for 2023 at 0.5578. This trend indicates that while the company has started rewarding shareholders with dividends, a very modest portion of earnings is dedicated to dividends, which might be a caution for potential dividend investors looking for higher income through payouts. Importantly, low coverage might question the sustainability of such dividends if the company encounters financial difficulties. Overall, given the recent inception of dividend payments, this trend could be considered mediocre.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow means that the company should have sufficient free cash flow (FCF) to cover its dividend payments. This ensures sustainability and financial health.

Looking at the historical data from 2003 to 2023 for Laboratory Corp of America Holdings (LH), it's evident that the company's free cash flow has generally been robust, growing considerably from $480.7 million in 2003 to $874.1 million by 2023. Notably, there was a peak in FCF in 2020, reaching $2.6881 billion. On the other hand, the dividend payout amounts were non-existent until 2009, after which, despite some fluctuations, they have remained relatively consistent in latter years, with $254 million in 2023. The ratio of dividends covered by cash flow mostly stays below 20%, with recent years showing values around 12.8-29%. This indicates that LH has more than sufficient cash flow to cover its dividend payouts, representing a robust and sustainable payout policy. With such high coverage ratios, LH demonstrates that it prioritizes maintaining a stable dividend while ensuring enough reinvestment into business operations and other liabilities. This trend is undoubtedly positive for both the company's financial health and investor confidence.

Stable Dividends Since the Company Began Paying Dividends?

Stable Dividends Over the Past 20 Years

In examining Laboratory Corp of America Holdings (LH), stability in dividend payments over a multi-decade period is a significant metric for income-seeking investors. According to the data, LH did not pay dividends for the first 19 years of the analysis period (2003-2021). It began disbursing dividends in 2022 with $1.8557 per share, which increased to $2.6771 in 2023. This indicates a more recent strategic shift towards rewarding shareholders through dividends. As there are no records of dividend payments dropping by more than 20% within the past 20 years due to the fact that dividends only commenced recently, the previous years cannot be accounted for under this metric. Consequently, while this trend indicates growth potential, the short history of dividend payments may raise questions on long-term stability for income-focused investors. The trend isn't necessarily bad, but it needs more time to establish consistent dividend history.

Dividends Paid for Over 25 Years?

Why is it important for a company to have a history of paying dividends for over 25 years?

Dividend payments signal financial stability and reliability to investors. A company that has consistently paid dividends over an extended period is generally seen as more trustworthy and stable. This long-term commitment reassures investors about the firm's ongoing profitability and prudent management. Assessing a company's dividend history over 25 years can thus be a reliable metric for judging its longevity and financial health.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over a long period can indicate a company's strong cash flow and commitment to returning value to shareholders.

Over the past 20 years, Laboratory Corp of America Holdings (LH) shows a trend of reducing its shares outstanding from 144.6 million in 2003 to 87.1 million in 2023. This consistent repurchasing activity indicates a strong cash flow, benefiting shareholders by increasing their ownership percentage. Specifically, reliable repurchases in years such as 2005-2014, and 2017-2023 support a solid track record in capital management. The average repurchase rate of -2.37% highlights a deliberate effort to shrink share count, signaling positive management actions and a shareholder-friendly approach.