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 Science Applications International Corporation (NYSE:SAIC) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 10th of October, you won't be eligible to receive this dividend, when it is paid on the 25th of October.
Science Applications International's next dividend payment will be US$0.4 per share, and in the last 12 months, the company paid a total of US$1.5 per share. Based on the last year's worth of payments, Science Applications International has a trailing yield of 1.8% on the current stock price of $84.56. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Science Applications International paying out a modest 47% of its earnings. A useful secondary check can be to evaluate whether Science Applications International generated enough free cash flow to afford its dividend. Luckily it paid out just 20% of its free cash flow last year.
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?
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Science Applications International earnings per share are up 4.7% per annum over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Science Applications International has delivered an average of 4.8% per year annual increase in its dividend, based on the past six years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy Science Applications International for the upcoming dividend? Earnings per share have been growing moderately, and Science Applications International is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Science Applications International is halfway there. Science Applications International looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Science Applications International? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
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