It looks like Labcorp Holdings Inc. (NYSE:LH) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Labcorp Holdings' shares on or after the 26th of November, you won't be eligible to receive the dividend, when it is paid on the 13th of December.

The company's next dividend payment will be US$0.72 per share, on the back of last year when the company paid a total of US$2.88 to shareholders. Based on the last year's worth of payments, Labcorp Holdings stock has a trailing yield of around 1.2% on the current share price of US$240.17. If you buy this business for its dividend, you should have an idea of whether Labcorp Holdings's dividend is reliable and sustainable. So we need to investigate whether Labcorp Holdings can afford its dividend, and if the dividend could grow.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Labcorp Holdings is paying out an acceptable 56% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Labcorp Holdings's earnings per share have fallen at approximately 9.8% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Labcorp Holdings dividends are largely the same as they were three years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Final Takeaway

Is Labcorp Holdings an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. All things considered, we are not particularly enthused about Labcorp Holdings from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Labcorp Holdings, you should know about the other risks facing this business. Our analysis shows 2 warning signs for Labcorp Holdings and you should be aware of these before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.