U.S. Physical Therapy, Inc.'s (NYSE:USPH) dividend will be increasing from last year's payment of the same period to $0.44 on 5th of April. The payment will take the dividend yield to 1.7%, which is in line with the average for the industry.

View our latest analysis for U.S. Physical Therapy

U.S. Physical Therapy's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, the company was paying out 135% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 36%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

The next year is set to see EPS grow by 158.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 63% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from $0.40 total annually to $1.76. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. U.S. Physical Therapy has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

U.S. Physical Therapy May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, U.S. Physical Therapy's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

We should note that U.S. Physical Therapy has issued stock equal to 16% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think U.S. Physical Therapy's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.