Sonic Healthcare Limited (ASX:SHL) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Sonic Healthcare's shares before the 3rd of September to receive the dividend, which will be paid on the 18th of September.

The company's upcoming dividend is AU$0.63 a share, following on from the last 12 months, when the company distributed a total of AU$1.07 per share to shareholders. Last year's total dividend payments show that Sonic Healthcare has a trailing yield of 4.5% on the current share price of AU$23.90. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sonic Healthcare can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Sonic Healthcare paid out 100% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Sonic Healthcare fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Check out our latest analysis for Sonic Healthcare

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.ASX:SHL Historic Dividend August 29th 2025

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Sonic Healthcare's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Story Continues

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, Sonic Healthcare has increased its dividend at approximately 4.8% a year on average.

The Bottom Line

Is Sonic Healthcare an attractive dividend stock, or better left on the shelf? The company has not generated any growth in earnings per share over the 10-year timeframe we measured. Plus, Sonic Healthcare's paying out a high percentage of its earnings and more than half its cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Sonic Healthcare despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Sonic Healthcare has 1 warning sign we think you should be aware of.

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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.

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