For investors looking for a dependable source of passive income, a methodical screening process is needed to separate strong dividend payers from risky high-yield stocks. One useful technique involves selecting for companies that have a high dividend score and also show good basic profitability and financial condition. This method focuses on long-term viability, seeking to find businesses able to keep and possibly raise their dividends over time, instead of only following the highest present yield. A stock that recently appeared from such a filter is Zimmer Biomet Holdings Inc (NYSE:ZBH), a major company in the orthopedic device sector.
Dividend Profile: A Focus on Reliability
The central attraction of ZBH for dividend investors is its consistent and dependable distribution policy. The company’s dividend traits show a dedication to giving capital back to shareholders without straining its finances.
- Yield and Track Record: ZBH provides a dividend yield of 1.04%. This may not be the greatest absolute yield offered, but it is backed by a good history. The company has paid dividends for at least ten straight years and has not cut its payment in that time, establishing a record of consistency that is important for income-oriented portfolios.
- Sustainable Payout: Possibly the most important measure for dividend durability is the payout ratio. ZBH uses about 23.7% of its earnings for dividend payments. This is a comfortably low figure, showing that most profits are kept for putting back into the business, lowering debt, or future projects. It gives a large cushion, making sure the dividend is secure even if profits face short-term changes.
- Growth and Outlook: The yearly dividend growth rate has been small at 0.19% lately. Still, analysts expect the company's earnings to increase quicker than the dividend in the next few years. This situation is good because it implies the already-low payout ratio might fall more, improving the dividend's safety and allowing for possible future raises.
Supporting Fundamentals: Profitability and Financial Health
A lasting dividend needs a profitable and financially stable business. This is why filtering for acceptable profitability and health scores is a key step in the method, and Zimmer Biomet generally satisfies these supporting conditions.
Profitability Strength: The company receives a good profitability score, supported by firm margins that are strong within the healthcare equipment field.
- It keeps a solid Gross Margin of 71.44% and an Operating Margin of 19.10%, both of which compare well to similar companies.
- Returns on capital, like Return on Invested Capital (ROIC) at 5.73%, are satisfactory, although improvement is possible compared to some top companies in the field.
Adequate Financial Health: ZBH’s financial health score points to a company with controllable, but significant, debt and acceptable short-term cash availability.
- The company’s cash position is good, with a Current Ratio of 2.43, indicating it can easily meet its near-term bills.
- The balance sheet shows a Debt/Equity ratio of 0.59, showing a medium amount of debt. While this is more than many similar companies, it is not seen as too high. The main point for dividend investors is that the low payout ratio gives enough earnings to cover both the interest costs and the dividend.
Valuation Context
From a price standpoint, ZBH seems fairly valued, which can be a good starting point for dividend investors looking for reasonable price. The stock sells at a Price-to-Earnings (P/E) ratio near 10.7 and a Forward P/E of 10.1. These figures are not only under the present average for the S&P 500 but are also lower than most of its industry peers. This price level implies the market may not completely account for the steadiness of the company's cash generation and its dividend consistency.
Is ZBH a Fit for a Dividend Portfolio?
Zimmer Biomet makes a strong argument for investors using a careful dividend screening method. It shows why the requirements of a high dividend score, along with acceptable profitability and health, are so significant. The company’s ten-year payment history and very sustainable payout ratio directly meet the main aim of reliable income. Its good profitability measures supply the source that pays for the dividend, while its acceptable financial health indicates the balance sheet is not a near-term danger to the payment.
For investors, ZBH stands as a possible "dividend cornerstone" in the healthcare field, a company whose business creates steady cash flows from a worldwide set of orthopedic products, backing a shareholder return policy that values predictability over impressive high yields.
Interested in examining other stocks that meet similar dividend durability filters? You can see the complete list of options by using the Best Dividend filter here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. Investors should conduct their own research and consider their individual financial circumstances before making any investment decisions. You can review a detailed fundamental analysis for ZBH here.
