Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, BWX Technologies Inc (NYSE:BWXT) has paid a dividend to shareholders. It currently yields 1.1%. Let’s dig deeper into whether BWX Technologies should have a place in your portfolio.
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How well does BWX Technologies fit our criteria?
The current trailing twelve-month payout ratio for the stock is 34%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 23%, leading to a dividend yield of around 1.2%. However, EPS should increase to $2.66, 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. The reality is that it is too early to consider BWX Technologies as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, BWX Technologies produces a yield of 1.1%, which is on the low-side for Aerospace & Defense stocks.
Now you know to keep in mind the reason why investors should be careful investing in BWX Technologies for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. I’ve put together three pertinent factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for BWXT’s future growth? Take a look at our free research report of analyst consensus for BWXT’s outlook.
- Valuation: What is BWXT 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 BWXT 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 firstname.lastname@example.org.