The board of Cardinal Health, Inc. (NYSE:CAH) has announced that it will pay a dividend on the 15th of October, with investors receiving $0.5056 per share. This payment means that the dividend yield will be 1.8%, which is around the industry average.

View our latest analysis for Cardinal Health

Cardinal Health's Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend was quite easily covered by Cardinal Health's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 142.1% over the next year. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Cardinal Health Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $1.21 in 2014 to the most recent total annual payment of $2.02. This means that it has been growing its distributions at 5.3% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. In the last five years, Cardinal Health's earnings per share has shrunk at approximately 5.0% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

In Summary

Overall, we think Cardinal Health is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 4 warning signs for Cardinal Health that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of 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.