Quest Diagnostics (DGX); A solid 13% dividend increase & compelling valuation

Quest Diagnostics’ (NYSE:DGX) dividend was increased by 13%. Its overall yield is above that of the S&P 500 Index, at 2.06%. The firm has paid a dividend since January of 2004.

Quest Diagnostics is a provider of healthcare diagnostic testing primarily in the United States.  The company generates nearly all its revenue from clinical testing through over 2000 testing centers. The testing the firm completes for patients includes routine blood testing and screening, genetic testing, and testing for drug abuse. The large-cap healthcare company also manufactures diagnostic products such as Care360 HER.  Care360 is a healthcare information technology product.  The products assists physicians in managing care better through electronic record keeping and also by storing patient information in patient portals. It also offer a content management system known as CharMaxx. Quest works under several other brands including Athena, Solstas, Summit, AmeriPath, and Dermpath.  The firm was founded in 1967 and is headquartered in Madison, New Jersey.

Quest Diagnostics has maintained a three-year growth rate of dividends of 9.7 percent. Quest Diagnostics currently ranks 1st in yield within the large cap healthcare, medical laboratories and research category. The quarterly dividend for the January payment will be $0.45 versus the prior year rate of $0.40 per share. Quest Diagnostics Inc. is a member of our Top 100 Dividend Stock List (see below).

top-100

The dividend will be paid at the new higher rate on January 25, 2017, to shareholders of record at close of business on January 10, 2017. Quest Diagnostics is currently priced at $87.29. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
1/10/2017 0.45
9/30/2016 0.4
7/1/2016 0.4
4/4/2016 0.4
1/8/2016 0.38
10/2/2015 0.38
7/6/2015 0.38
4/6/2015 0.38
1/9/2015 0.33
10/3/2014 0.33
7/7/2014 0.33
4/4/2014 0.33
1/3/2014 0.3
9/27/2013 0.3
6/28/2013 0.3
3/28/2013 0.3
1/9/2013 0.3
9/27/2012 0.17
6/29/2012 0.17
3/30/2012 0.17
1/5/2012 0.17
10/5/2011 0.1
6/30/2011 0.1
4/1/2011 0.1
1/6/2011 0.1
9/30/2010 0.1
7/1/2010 0.1
4/1/2010 0.1

Quantitative Analysis:

We examine Quest Diagnostics upon our five key criteria, which include; 

Category Value Score
Dividend Yield 2.06% 277
Dividend Growth (3 to 6 year avg) 18.8%  97
Forward P/E 15.92  121
S&P Financial Rating BBB+ 160
Beta  0.90  100
Total Score   755

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
2.06% 9.7% 27.8% 53.7 1.63 0.95 2.11 0.68% 2.51%

Positives;

  • Quest Diagnostics’ dividend yield is above that of the S&P 500 Index.
  • Quest Diagnostics has paid out a dividend consecutively for the last 12 years.
  • Quest Diagnostics’ forward P/E ratio is near 16, below the average of the market.
  • Quest Diagnostics’ current dividend yield (2.06%) is above its five-year average historical dividend yield of 1.60%.
  • Quest Diagnostics maintains a beta of 0.90, lower than the average company.

Negatives;

  • Quest Diagnostics is trading slightly above its ten-year average price/sales (P/S) average.

Latest Earnings & Overall Analysis:

Quest Diagnostics issued its earnings data on October 20th. The company reported $1.37 earnings per share for the quarter, beating the average estimate by 2 cents. The firm had revenue of $1.89 billion for the quarter, much higher than the consensus estimate of $1.53 billion. Quest followed up on November 11th with updated guidance on earnings. The company provided earnings per share guidance of $5.07-5.12 for the period. The estimate was inline with prior estimates of $5.10 per share for the next fiscal year.  The firm has been a stalwart in the messy healthcare sector this year. Its shares reached a new 52-week price high of $87.48 on November 21st. The stock has gained nearly 30% over the past year.

The company basically operates as a duopoly with competitor LabCorp. These two firms dominate the testing business and have a large barrier for any new competitors. independent diagnostic testing landscape. Like LabCorp, the company has stayed to its bread-and-butter, testing.  It has initiated a relationship with HCA Hospitals to set up in patient lab testing. It also has diversified into resting for employees with Safeway and even providing genetic testing for Ancestry.com It also started QuestDirect.  Its a new direct patient service where customers in Missouri and Colorado can order lab tests without a doctor’s script.
Overall Quest Diagnostics is a solid company in its category. It is one of the few companies in the healthcare sector to actually meet financial results in the third quarter.  Despite the dramatic price rise in the past year, Quest trades at a modest 16 times next year’s earnings estimates. With its recent 13% dividend hike, the firm offers investors a yield of over 2%. It does trade at a modestly high P/S ratio, but maintains a below market beta. Due to these factors, Quest Diagnostics qualifies as a member of our  Top 100 Dividend StocksIf you want to find out if a stock is in our model portfolio please subscribe to our monthly newsletter.  

Quest Diagnostics Inc. Dividend Yield Chart (Click to enlarge)

dgx4

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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