Have you been keeping an eye on BBA Aviation plc’s (LON:BBA) upcoming dividend of US$0.04 per share payable on the 02 November 2018? Then you only have 4 days left before the stock starts trading ex-dividend on the 13 September 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine BBA Aviation’s latest financial data to analyse its dividend characteristics.
5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does BBA Aviation pass our checks?
The current trailing twelve-month payout ratio for BBA is 114%, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect BBA’s payout to fall into a more sustainable range of 58.4% of its earnings, which leads to a dividend yield of around 3.9%. In addition to this, EPS should increase to $0.16, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Relative to peers, BBA Aviation generates a yield of 3.5%, which is on the low-side for Infrastructure stocks.
Whilst there are few things you may like about BBA Aviation from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for BBA’s future growth? Take a look at our free research report of analyst consensus for BBA’s outlook.
- Valuation: What is BBA worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BBA is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.