ResMed Inc. (NYSE:RMD) Offers a Reliable Dividend with Strong Financial Health

When building a portfolio focused on generating reliable passive income, a methodical approach to stock selection is paramount. One effective strategy involves screening for companies that not only offer an attractive dividend but also demonstrate the underlying financial strength to sustain and grow those payments over time. This means looking beyond the headline dividend yield to assess a company's profitability and overall financial health. A highly profitable company with a strong balance sheet is far better positioned to maintain its dividend through economic cycles than one with a high yield but shaky fundamentals. This disciplined screening process helps identify companies like ResMed Inc. (NYSE:RMD), which can serve as a cornerstone for a durable dividend portfolio.

Dividend Reliability and Growth

For dividend investors, the sustainability and growth trajectory of the payout are often more critical than the current yield. ResMed's dividend profile is built on a foundation of consistency and prudent management.

• Track Record of Growth: ResMed has increased its dividend for at least 10 consecutive years, presenting a reliable commitment to returning capital to shareholders. The dividend has grown at an average annual rate of 6.33% over the past five years, indicating a policy of rewarding investors with rising income.
• Sustainable Payout Ratio: A key metric for dividend safety is the payout ratio, which indicates what portion of earnings is paid out as dividends. ResMed's payout ratio stands at a conservative 22.19%, meaning the company retains the vast majority of its profits to reinvest in the business. This low ratio provides a significant cushion, ensuring the dividend is well-protected even if earnings face temporary pressure.
• Earnings Support: Crucially, ResMed's earnings growth has outpaced its dividend growth. This alignment is a strong positive signal, as it means the company is generating more than enough profit to cover its increasing dividend obligations, making the current growth rate sustainable.

Underlying Profitability Strength

The ability to consistently pay a dividend is directly tied to a company's profitability. ResMed is strong in this area, which is the engine that funds the dividend. The company's exceptional profitability rating is evidenced by several key metrics:

• Superior Returns: ResMed generates a Return on Invested Capital (ROIC) of 19.35%, significantly outperforming 98% of its peers in the Health Care Equipment & Supplies industry. This indicates highly efficient use of capital to generate profits.
• Healthy Margins: The company has an operating margin of 32.76%, placing it in the top tier of its industry. Strong and stable margins provide a dependable stream of income that can reliably support dividend payments.

Solid Financial Health

A company's financial health determines its resilience during economic downturns. A strong balance sheet ensures that a company can meet its obligations and avoid cutting its dividend when times are tough. ResMed's financial position is sound.

• Minimal Debt Reliance: With a low Debt-to-Equity ratio of 0.11, ResMed is not overly dependent on debt financing. This reduces risk and interest obligations, freeing up more cash for shareholder returns.
• Strong Liquidity: The company's current ratio of 3.44 and quick ratio of 2.53 demonstrate ample ability to cover short-term liabilities, further highlighting its financial stability.

Valuation and Overall Assessment

While ResMed's valuation, with a P/E ratio around 28, may not be considered deep value, it is reasonable relative to the broader S&P 500 and actually cheaper than many of its industry peers based on several metrics. When combined with its high ratings for dividend sustainability, profitability, and financial health, the stock presents a strong case for investors seeking quality dividend growth. The full fundamental analysis report provides a more detailed breakdown of these factors.

ResMed Inc. exemplifies the type of company that a disciplined dividend screening strategy aims to uncover. It may not offer the highest yield on the market, but it provides a notable combination of a growing, well-supported dividend, exceptional profitability, and a firm balance sheet. This profile is ideal for investors prioritizing long-term, reliable income and capital preservation.

For investors looking to discover more companies that meet similar criteria for dividend reliability, profitability, and health, the fully configured Best Dividend Stocks screen is an excellent starting point for further research.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.