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 BWX Technologies, Inc. (NYSE:BWXT) is about to go ex-dividend in just 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase BWX Technologies' shares before the 20th of November in order to be eligible for the dividend, which will be paid on the 12th of December.
The company's upcoming dividend is US$0.23 a share, following on from the last 12 months, when the company distributed a total of US$0.92 per share to shareholders. Last year's total dividend payments show that BWX Technologies has a trailing yield of 1.2% on the current share price of $78.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether BWX Technologies has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. BWX Technologies paid out a comfortable 37% of its profit last year. 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. The company paid out 98% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While BWX Technologies's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to BWX Technologies's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see BWX Technologies's earnings per share have risen 10% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, BWX Technologies has increased its dividend at approximately 11% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Is BWX Technologies worth buying for its dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. To summarise, BWX Technologies looks okay on this analysis, although it doesn't appear a stand-out opportunity.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Be aware that BWX Technologies is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.