Here's Why We're Wary Of Buying U.S. Physical Therapy's (NYSE:USPH) For Its Upcoming Dividend

Here’s Why We’re Wary Of Buying U.S. Physical Therapy’s (NYSE:USPH) For Its Upcoming Dividend

Posted by Admin November 10, 2024 Sports

U.S. Physical Therapy, Inc. (NYSE:USPH) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase U.S. Physical Therapy’s shares before the 15th of November in order to be eligible for the dividend, which will be paid on the 6th of December.

The company’s next dividend payment will be US$0.44 per share, and in the last 12 months, the company paid a total of US$1.76 per share. Based on the last year’s worth of payments, U.S. Physical Therapy stock has a trailing yield of around 1.9% on the current share price of US$95.08. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for U.S. Physical Therapy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. U.S. Physical Therapy distributed an unsustainably high 187% of its profit as dividends to shareholders last year. Without extenuating circumstances, we’d consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

It’s good to see that while U.S. Physical Therapy’s dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we’d be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

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When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we’re concerned to see U.S. Physical Therapy’s earnings per share have dropped 6.5% a year over the past 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. In the past 10 years, U.S. Physical Therapy has increased its dividend at approximately 14% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. U.S. Physical Therapy is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.

Has U.S. Physical Therapy got what it takes to maintain its dividend payments? It’s never great to see earnings per share declining, especially when a company is paying out 187% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in U.S. Physical Therapy’s cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It’s not an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.

So if you’re still interested in U.S. Physical Therapy despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we’ve found 3 warning signs for U.S. Physical Therapy that we recommend you consider before investing in the business.

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.