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Leidos Holdings, Inc. (NYSE:LDOS) has announced that it will be increasing its dividend on the 30th of September to US$0.36. This will take the annual payment to 1.5% of the stock price, which is above what most companies in the industry pay.
Leidos Holdings' Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Leidos Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
The next year is set to see EPS grow by 7.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.
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 suggests that the dividend might not be the most reliable. The dividend has gone from US$1.92 in 2012 to the most recent annual payment of US$1.44. Doing the maths, this is a decline of about 3.1% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Leidos Holdings May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 4.5% per year. While growth may be thin on the ground, Leidos Holdings could always pay out a higher proportion of earnings to increase shareholder returns.
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Leidos Holdings that investors should take into consideration. We have also put together a list of global stocks with a solid 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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