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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Booz Allen Hamilton Holding Corporation (NYSE:BAH) has paid a dividend to shareholders. It currently yields 1.6%. Should it have a place in your portfolio? Let's take a look at Booz Allen Hamilton Holding in more detail.
Here's how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Booz Allen Hamilton Holding fare?
The company currently pays out 26% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect BAH's payout to increase to 29% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.7%. Furthermore, EPS should increase to $2.92. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Booz Allen Hamilton Holding as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Booz Allen Hamilton Holding generates a yield of 1.6%, which is high for IT stocks but still below the market's top dividend payers.
If Booz Allen Hamilton Holding is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. There are three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for BAH’s future growth? Take a look at our free research report of analyst consensus for BAH’s outlook.
- Valuation: What is BAH 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 BAH 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.