The board of Quest Diagnostics Incorporated (NYSE:DGX) has announced that it will be paying its dividend of $0.80 on the 21st of April, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 1.9%, providing a nice boost to shareholder returns.

View our latest analysis for Quest Diagnostics

Quest Diagnostics' Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Quest Diagnostics was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 34.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

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Quest Diagnostics Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $1.32 in 2015, and the most recent fiscal year payment was $3.20. This works out to be a compound annual growth rate (CAGR) of approximately 9.3% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Quest Diagnostics May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 4.6% per year. While growth may be thin on the ground, Quest Diagnostics could always pay out a higher proportion of earnings to increase shareholder returns.

We Really Like Quest Diagnostics' Dividend

Overall, a dividend increase is always good, and we think that Quest Diagnostics is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Quest Diagnostics 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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