Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Booz Allen Hamilton Holding Corporation (NYSE:BAH) is about to go ex-dividend in just three days. If you purchase the stock on or after the 13th of August, you won't be eligible to receive this dividend, when it is paid on the 28th of August.
Booz Allen Hamilton Holding's upcoming dividend is US$0.31 a share, following on from the last 12 months, when the company distributed a total of US$1.24 per share to shareholders. Calculating the last year's worth of payments shows that Booz Allen Hamilton Holding has a trailing yield of 1.5% on the current share price of $84.67. If you buy this business for its dividend, you should have an idea of whether Booz Allen Hamilton Holding's dividend is reliable and sustainable. So we need to investigate whether Booz Allen Hamilton Holding can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Booz Allen Hamilton Holding's payout ratio is modest, at just 32% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 30% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Booz Allen Hamilton Holding's earnings per share have been growing at 18% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Booz Allen Hamilton Holding has delivered 15% dividend growth per year on average over the past nine years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Is Booz Allen Hamilton Holding an attractive dividend stock, or better left on the shelf? Booz Allen Hamilton Holding has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Booz Allen Hamilton Holding, and we would prioritise taking a closer look at it.
While it's tempting to invest in Booz Allen Hamilton Holding for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Booz Allen Hamilton Holding that we recommend you consider before investing in the business.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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