The board of U.S. Physical Therapy, Inc. (NYSE:USPH) has announced that it will be paying its dividend of $0.45 on the 11th of April, an increased payment from last year’s comparable dividend. This will take the dividend yield to an attractive 2.2%, providing a nice boost to shareholder returns.
U.S. Physical Therapy’s Payment Could Potentially Have Solid Earnings Coverage
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Based on the last payment, U.S. Physical Therapy’s profits didn’t cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
Over the next year, EPS is forecast to expand by 68.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Dividend Volatility
The company has a long dividend track record, but it doesn’t look great with cuts in the past. The dividend has gone from an annual total of $0.48 in 2015 to the most recent total annual payment of $1.80. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
Dividend Growth May Be Hard To Come By
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. U.S. Physical Therapy has seen earnings per share falling at 5.6% per year over the last five years. 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. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
U.S. Physical Therapy’s Dividend Doesn’t Look Sustainable
Overall, we always like to see the dividend being raised, but we don’t think U.S. Physical Therapy will make a great income stock. The payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don’t think U.S. Physical Therapy is a great stock to add to your portfolio if income is your focus.