BAE Systems' (LON:BA.) Upcoming Dividend Will Be Larger Than Last Year's

BAE Systems plc (LON:BA.) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of June to £0.206. The payment will take the dividend yield to 2.1%, which is in line with the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that BAE Systems' stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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BAE Systems' Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, BAE Systems' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 33.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.

See our latest analysis for BAE Systems

BAE Systems Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from £0.203 total annually to £0.33. This implies that the company grew its distributions at a yearly rate of about 5.0% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

We Could See BAE Systems' Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that BAE Systems has been growing its earnings per share at 7.1% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

BAE Systems Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that BAE Systems is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for BAE Systems that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of 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.