ResMed Inc (NYSE:RMD): A Strong Dividend Stock with Growth Potential and Financial Stability

Dividend investing continues to be a key strategy for investors looking for steady income, especially in uncertain markets. One way to find strong dividend options is by looking for stocks with high dividend ratings and solid profitability and financial health, important signs of long-term viability. RESMED INC (NYSE:RMD) appears as a strong choice under this approach, offering a mix of dependable payouts, strong earnings, and a stable financial position.

Dividend Strength: Consistency and Expansion

ResMed’s dividend performance is notable for its steadiness and slow but steady growth, important qualities for income-focused investors:

• Dividend Yield: At 0.86%, RMD’s yield is lower than the S&P 500 average (2.40%), but it performs well within its industry (Health Care Equipment & Supplies), doing better than 91% of similar companies. This shows a strong position even in a sector with generally lower yields.
• Dividend Growth: The company has raised its dividend by an average of 6.31% each year over the last five years, showing a dedication to rewarding shareholders while still investing in expansion.
• Payout Ratio: Just 22.19% of earnings go toward dividends, far below the warning level of 80%. This low ratio means there is plenty of room to maintain and increase payouts without financial stress.
• Track Record: RMD has paid dividends for more than ten years without cuts, proving its ability to endure different economic conditions.

These measures match the screening focus on long-term viability—a high dividend rating (7/10) reflects not just the current yield but the potential for continued payouts.

Profitability: Supporting Dividend Payments

A company’s ability to maintain dividends depends on its profit generation. ResMed performs well here, with a ChartMill Profitability Rating of 9/10:

• Margins: Operating margins of 32.76% and profit margins of 27.22% place it in the top 1% and 6% of the industry, respectively. This efficiency ensures enough cash flow to support dividends.
• Returns on Capital: A Return on Invested Capital (ROIC) of 19.35% is much higher than the industry average (8.28%), showing effective use of capital to produce earnings.

Strong profitability means less need to rely on debt to fund dividends, a key factor in the screening process.

Financial Health: A Safety Net for Dividends

A solid balance sheet (ChartMill Health Rating: 8/10) further supports RMD’s dividend outlook:

• Solvency: With a Debt/Equity ratio of 0.11 and an Altman-Z score of 13.89 (showing almost no bankruptcy risk), the company has very little debt.
• Liquidity: A Current Ratio of 3.44 and Quick Ratio of 2.53 indicate more than enough short-term assets to cover obligations, including dividends.

These factors align with the screen’s emphasis on financial stability—essential for avoiding dividend cuts during tough times.

Valuation and Growth Outlook

While RMD trades at a higher valuation (P/E of 29.73 vs. the industry’s 27.64), its growth potential supports this premium:

• Revenue and EPS Growth: Past revenue growth (11.72% per year) and expected EPS growth (10.20% annually) suggest earnings can keep supporting dividend increases.
• Industry Position: As a leader in digital health for respiratory care, RMD benefits from long-term trends like aging populations and rising chronic disease rates.

Conclusion

ResMed represents the balance many dividend investors seek: a steady payout with room for growth, supported by strong profitability and financial health. While its yield may not attract those seeking high income, its low payout ratio and top-tier margins make it a dividend stock with growth potential—ideal for investors focused on long-term stability over short-term yield.

For more dividend stock ideas filtered by similar criteria, check out the Best Dividend Stocks screener.

Disclaimer: This analysis is not investment advice. Investors should do their own research or consult a financial advisor before making decisions.