Zimmer Biomet Holdings Inc (NYSE:ZBH): A Steady Dividend Performer with Strong Profitability and Financial Stability

When assessing stocks for dividend investing, a measured strategy is important. The "Best Dividend Stocks" screen finds companies with good dividend traits while keeping steady profitability and financial strength, key elements in maintaining payouts over time. The screen selects stocks with a ChartMill Dividend Rating of 7 or higher, confirming strong dividend performance, along with a Profitability Rating of at least 5 and Health Rating of at least 5 to exclude financially weak or unprofitable companies. One stock that fits these standards is Zimmer Biomet Holdings Inc (NYSE:ZBH), a medical technology firm focused on orthopedic products.

Key Dividend Traits of Zimmer Biomet (ZBH)

Zimmer Biomet is notable for its steady dividend profile, backed by regular payouts and a stable business approach. Here’s why it suits a dividend-focused plan:

• Dividend Consistency:

  • ZBH has distributed dividends for 10 straight years, showing dedication to rewarding shareholders.
  • The company has not cut its dividend in this time, a sign of dependability.
  • While the dividend yield (1.00%) is lower than the S&P 500 average (2.40%), it performs well within its sector, surpassing 93% of competitors in Health Care Equipment & Supplies.

• Reasonable Payout Ratio:

  • ZBH’s payout ratio (21.28%) is low, meaning only a small part of earnings goes to dividends. This allows for reinvestment and potential dividend increases.
  • Earnings growth (5.73% projected yearly) is faster than the dividend growth rate (0.19%), supporting long-term stability.

• Profitability Backs Dividends:

  • The company has a Profitability Rating of 8, due to strong margins:
    • Operating Margin (19.59%) places it in the top 9% of the sector.
    • Return on Invested Capital (5.99%) beats 80% of peers, showing effective capital use.
  • These figures suggest Zimmer Biomet can sustain and possibly raise dividends without financial stress.

Financial Stability Factors

While ZBH’s Health Rating of 5 shows decent financial strength, there are details to note:

• Liquidity is strong, with a Current Ratio of 2.44 and Quick Ratio of 1.46, ensuring short-term bills are easily paid.
• Debt is under control (Debt/Equity of 0.53), though the Debt-to-FCF ratio (6.53) is high, meaning it would take years to clear debt from free cash flow. Still, this is better than 77% of industry rivals.

Price and Growth

ZBH trades at a P/E of 11.74, well below the S&P 500 (27.24) and cheaper than 91% of its sector peers. This discount, paired with rising revenue and EPS growth forecasts, makes it attractive for dividend investors looking for value.

Final Thoughts

Zimmer Biomet fits a careful dividend approach, providing a steady payout history, manageable ratios, and strong profitability. Though its yield isn’t the highest, the mix of financial stability and growth prospects makes it a solid pick for investors focused on lasting dividend reliability.

For more dividend stock ideas, check the full Best Dividend Stocks screen.

Disclaimer: This analysis is not investment advice. Always do your own research or consult a financial advisor before making investment choices.