Cardinal Health CAH Stock – Q3 2019 Dividend Safety Update

Cardinal Health CAH Stock - Q3 2019 Dividend Safety Update



on May 9th 2019 Cardinal Health reported earnings results for the third quarter of fiscal 2019 which ended on March 31st 2019 this video provides an update on the company's dividend safety using its most recent operating results to begin let's talk about Cardinal Health's business model Cardinal health was founded in 1971 and is one of the largest healthcare supply companies the company serves over 24,000 pharmacies in the US and more than 85 percent of the country's hospitals Cardinal health distributes branded and generic drugs and consumer products to hospitals and other health care providers the company also distributes medical surgical and laboratory equipment to hospitals surgery centers and clinical labs Cardinal health has a market capitalization of thirteen point three billion dollars with annual revenues of nearly one hundred and twenty seven billion dollars Cardinal health is one of the world's most popular dividend growth stocks the company's current dividend yield is 4.4 percent moreover Cardinal health is a consistent dividend grower in fact the company has increased its annual dividend payment for 34 consecutive years because of this Cardinal health qualifies to be a member of the dividend aristocrats an exclusive group of dividend stocks with more than 25 years of consecutive dividend increases looking ahead investors interested in owning Cardinal health stock will likely be interested in the safety of the company's dividend payment for the remainder of this video we will accept we will discuss Cardinal health stiv attend safety from four perspectives its dividend safety in the context of its current earnings its dividend safety in the context of its current free cash flow its dividend safety in the context of its recession performance and as dividend safety in the context of its current debt load first let's discuss Cardinal Health's dividend safety in the context of the company's current earnings in the third quarter of fiscal 2019 Cardinal health generated adjusted earnings per share of one dollar and 59 cents which compared favorably to the one dollar and 39 cents of adjusted earnings per share in the same period a year ago for context Cardinal health currently pays a quarterly dividend of 48 cents per share which implies a pay ratio of 30% in the most recent quarter looking out over a longer time horizon our conclusion is the same Cardinal health generated four dollars and 17 cents of adjusted earnings per share through the first three quarters of fiscal 2019 the company distributed $1 forty-three cents of common share dividends during the same time period for a dividend payout ratio of thirty-four percent in the full fiscal year using earnings cardinal health stim attend appears very safe for the foreseeable future many analysts believe that comparing a company's dividend payments to its free cash flow is a better method for assessing dividend safety with that in mind we will now compare Cardinal Health's current dividend payment to its free cash flow Cardinal health generated 1.5 billion dollars of cash flow from operating activities in the third quarter of fiscal 2019 and spend seventy six million dollars on capital expenditures during the same time period for free cash flow of approximately 1.4 billion dollars the company distributed 142 million dollars of common share dividends during the same time period for a free cash flow dividend payout ratio of 10% looking out over a longer time horizon our conclusion is the same Cardinal health generated 2.2 billion dollars of cash flow from operating activities in the first three quarters of fiscal 2019 and spent one hundred and ninety two million dollars on capital expenditures for free cash flow of two billion dollars the company distributed four hundred thirty five million dollars of common share dividends during the same time period for a free cash flow dividend payout ratio of twenty percent using free cash flow our conclusion for Cardinal Health's dividend safety is the same as when we used earnings the company's dividend is currently well covered by free cash flow and we see no risk of a dividend cut in the near future companies do not cut their dividends in the good times instead dividends are reduced when companies experience financial difficulties with that in mind this section will analyze Cardinal Health's current dividend safety in the context of the company's historical recession performance we believe that the best way to measure a company's recession resiliency is by assessing its earnings per share performance during the financial crisis that occurred between 2007 and 2009 Cardinal Health's performance during this time period is shown here Cardinal Health suffered a 34 percent decline and adjusted earnings for sure during the last recession the company did not make a new high and adjusted earnings per share until 2016 on the surface this looked really bad however most of this decline is due to the company's spin-off of care fusion corporation the more important metric to look at is the company's dividend coverage importantly Cardinal Health's earnings still covered as dividend payment and the company continued its multi-decade streak of dividend increases because of this we have little concerns about the company's ability to pay rising dividends during future economic downturns the last angle that we will use to assess Cardinal Health skirt dividend safety is by looking at the company's current debt level more specifically we will see how much the company's weighted average interest rate would have to increase before its free cash flow would no longer cover its dividend payment at the end of the third quarter of fiscal 2019 Cardinal health had 9 point 1 billion dollars of total debt outstanding the company generated 75 million dollars of interest expense in the most recent quarter for a weighted average interest rate of 3.3% the following image shows how changes to Cardinal Health's weighted average interest rate would impact the company's dividend safety as measured by free cash flow as you can see Cardinal Health's weighted average interest rate we need to rise to above the twenty six point six percent level before its dividend would no longer be covered by free cash flow because of this we have little concerns about the impact of the company's debt on Cardinal Health's dividend safety moving forward thank you for watching today's video which performed a deep dive on Cardinal Health current dividend safety we invite you to subscribe to this channel and like this video which will help more people discover sure dividends investor education efforts if you're interested in learning more about our systematic approach to dividend growth investing visit our website at

2 comments

  1. Sounds like a good stock.

    I been reading up on REITS, I just listened to your podcast with Brad from Forbes on REITS.

    Lots of good information.

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