HCA Healthcare, Inc. (NYSE:HCA) will increase its dividend from last year's comparable payment on the 31st of March to $0.72. Although the dividend is now higher, the yield is only 0.9%, which is below the industry average.

Check out our latest analysis for HCA Healthcare

HCA Healthcare's Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, HCA Healthcare's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 41.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 9.6% by next year, which is in a pretty sustainable range.

HCA Healthcare's Dividend Has Lacked Consistency

HCA Healthcare has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2018, the annual payment back then was $1.40, compared to the most recent full-year payment of $2.88. This means that it has been growing its distributions at 11% per annum over that time. HCA Healthcare has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. HCA Healthcare has impressed us by growing EPS at 18% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like HCA Healthcare's Dividend

Overall, a dividend increase is always good, and we think that HCA Healthcare is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for HCA Healthcare that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.