One of the true stand-out results from last month’s reporting season came from medical diagnostic company Sonic Healthcare Limited (ASX: SHL). The company benefitted from the surge in demand resulting from COVID-19 and, in the six months to 31 December 2021, revenue was up 33% over the comparable period, while net profit after tax (NPAT) rocketed 166%.
Importantly for income investors, Sonic Healthcare also announced a 6% increase to its interim dividend, building on a strong history of dividend increases. But is it enough to classify Sonic Healthcare as a ‘dividend aristocrat’?
What is a dividend aristocrat?
The term ‘dividend aristocrat’ is used to describe a company that has increased its dividend consecutively for 25 years. It is an auspicious title in the world of dividend investing because it requires a company to unwaveringly defeat the ups and downs of different business cycles.
Unfortunately, Sonic Healthcare’s distribution history doesn’t quite crack the ‘aristocrat’ criteria, although it does come deliciously close.
In fact, if it wasn’t for a short period from 2010 to 2012 when the dividend remained flat, Sonic Healthcare would be there. Just have a look at the impressive chart below:
Source: Chart compiled by author using data from Sonic Healthcare.
How much of its earnings does the company pay out?
An important driver of the great chart above is Sonic Healthcare’s progressive dividend policy. This is where dividends are increased over time as earnings grow. However, if earnings fall, the company tries to at least maintain the same dividend level. The approach gradually raises the bar each time the distribution is increased.
It also means the company’s payout ratio, the percentage of earnings per share (EPS) the company pays out, can fluctuate from year to year, depending on earnings. For example, in 2019 Sonic Healthcare paid out 66.4% of its earnings. However, in 2020 the ratio increased to 76.5% as the dividend increased, but earnings per share dipped.
What is Sonic Healthcare’s dividend yield?
The most recent interim dividend of 36 cents per share for the six months to 31 December 2020 gives the company a trailing dividend yield of 2.7%, based on the current Sonic Healthcare share price. The dividend comes partly franked.
When does Sonic Healthcare pay its dividend?
The Sonic Healthcare share price will go ex-dividend on Tuesday 9 March 2021. The ‘ex-date’ is when the shares start selling without the value of its next dividend payment. An investor needs to own the shares before the ex-date to receive the dividend. The dividend will then be paid on Wednesday 24 March 2021.
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Returns As of 15th February 2021
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Motley Fool contributor Regan Pearson has no position in any of the stocks mentioned. ou can follow him on Twitter @Regan_Invests. The Motley Fool Australia has recommended Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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