Cardinal Health's Dividend Increase Signals Continued Strength Amid Sector Challenges

Cardinal Health (NYSE: CAH) has announced an increase in its quarterly dividend to $0.5107 per share, up from the previous $0.5056, marking the latest step in its long-standing commitment to shareholder returns. The dividend, payable on July 15 to shareholders of record as of July 1, reflects the company’s robust financial performance and strategic execution in fiscal 2025. This move comes amid a backdrop of sector-wide challenges, including supply chain disruptions and regulatory pressures, positioning Cardinal Health as a resilient player in the healthcare supply chain and specialty services space.

Financial Resilience Drives Dividend Growth

Cardinal Health’s decision to raise its dividend aligns with its third-quarter 2025 financial results, which highlighted a 13% increase in non-GAAP diluted EPS to $2.35, driven by strong performance across its Pharmaceutical and Specialty Solutions segment. This segment, now bolstered by recent acquisitions like GI Alliance and Integrated Oncology Network (ION), contributed to 17% revenue growth (excluding a major customer contract expiration). The company also revised its fiscal 2025 non-GAAP EPS guidance upward to $8.05–$8.15, a 3.7% increase from its prior outlook, signaling confidence in its ability to sustain earnings momentum.

The dividend hike, while modest, underscores management’s belief in the durability of cash flows. With a payout ratio of 91.12% (dividends as a percentage of non-GAAP EPS), Cardinal Health is allocating nearly all earnings to shareholders—a strategy that reflects its mature business model and limited need for reinvestment in core operations. However, this high payout ratio raises questions about its ability to fund future growth initiatives.

Strategic Acquisitions Fuel Long-Term Growth

The dividend increase is not occurring in isolation. Cardinal Health’s recent acquisitions—such as its $2.9 billion stake in GI Alliance, a leading gastroenterology management services organization, and the ION oncology network—are critical to its pivot toward high-margin specialty healthcare services. These moves are designed to reduce reliance on traditional pharmaceutical distribution, which faces headwinds from generic drug deflation and supply chain volatility.

For instance, the GI Alliance acquisition adds 900+ physicians across 345 locations, expanding Cardinal Health’s footprint in multi-specialty care. Similarly, ION’s 100+ oncology providers strengthen its Navista platform, a key initiative to support community cancer centers. These strategic bets are already paying off: the Other segment, which includes these new ventures, reported 13% revenue growth in Q3 2025, driven by OptiFreight Logistics and nuclear health solutions.

Risks and Challenges

While the dividend increase is positive, investors must consider the risks:
1. Debt Burden: The GI Alliance and ION deals increased debt by $2.9 billion, raising interest expenses to an estimated $200–$230 million for fiscal 2025. This could compress margins if earnings growth slows.
2. Segment Volatility: The Global Medical Products and Distribution (GMPD) segment, which supplies medical devices and surgical supplies, faces write-offs from its WaveMark business, contributing to revised profit guidance of $130–$150 million—a 10% drop from earlier expectations.
3. Regulatory Risks: Ongoing DOJ investigations into potential Anti-Kickback Statute violations could lead to penalties or operational disruptions.

Valuation and Investor Considerations

Cardinal Health’s stock currently trades at a P/E ratio of 10.2x (based on its revised $8.10 EPS guidance), below the healthcare sector average of 14.5x, suggesting it is undervalued relative to its peers. The dividend yield of 2.1% (assuming the $0.5107 quarterly payout) provides a 4.2% annualized return, attractive in a low-interest-rate environment.

However, investors should weigh the dividend against growth opportunities. While the payout ratio is high, the company’s 28-year streak of dividend increases and its balance sheet—boasting $3.8 billion in cash—suggest it can sustain current returns.

Conclusion

Cardinal Health’s dividend increase to $0.5107 per share reflects its financial discipline and the success of its strategic pivot toward specialty healthcare services. With a revised EPS guidance of $8.15 and a dividend yield of 2.1%, the stock offers a compelling mix of income and growth potential.

However, investors should monitor execution risks, particularly in integrating acquisitions and managing debt. If the company can sustain its current trajectory—driven by high-margin segments like GI and oncology—Cardinal Health could deliver total returns above its sector peers. The upcoming Q4 2025 earnings report, expected in early 2026, will be a key test of whether the dividend increase is truly sustainable.

In summary, Cardinal Health remains a defensive play in the healthcare sector, offering stability through dividends while positioning itself for long-term growth in high-demand specialty markets. The stock is worth considering for income-focused investors willing to accept moderate volatility tied to its debt and regulatory risks.