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Leidos Holdings, Inc. (NYSE:LDOS) has announced that it will pay a dividend of US$0.34 per share on the 30th of June. Based on this payment, the dividend yield on the company's stock will be 1.3%, which is an attractive boost to shareholder returns.
Leidos Holdings' Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Leidos Holdings' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 9.3% over the next year. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.
Leidos Holdings' Dividend Has Lacked Consistency
It's comforting to see that Leidos Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2012, the first annual payment was US$1.92, compared to the most recent full-year payment of US$1.36. This works out to be a decline of approximately 3.8% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Leidos Holdings May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Leidos Holdings has only grown its earnings per share at 4.5% per annum over the past five years. While EPS growth is quite low, Leidos Holdings has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On Leidos Holdings' Dividend
Overall, a consistent dividend is a good thing, and we think that Leidos Holdings has the ability to continue this into the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 3 warning signs for Leidos Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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