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The board of Encompass Health Corporation (NYSE:EHC) has announced that it will pay a dividend on the 20th of July, with investors receiving US$0.28 per share. This means the annual payment is 1.7% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Encompass Health

Encompass Health’s Earnings Easily Cover the Distributions

If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Before making this announcement, Encompass Health was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 4.7%. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

historic-dividend

historic-dividend

Encompass Health Is Still Building Its Track Record

Encompass Health’s dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2013, the dividend has gone from US$0.72 to US$1.12. This means that it has been growing its distributions at 5.0% per annum over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

Encompass Health Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. We are encouraged to see that Encompass Health has grown earnings per share at 6.4% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Encompass Health’s prospects of growing its dividend payments in the future.

Our Thoughts On Encompass Health’s Dividend

Overall, we think Encompass Health is a solid choice as a dividend stock, even though the dividend wasn’t raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company’s dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we’ve identified 2 warning signs for Encompass Health that investors need to be conscious of moving forward. Is Encompass Health not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.

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