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Booz Allen Hamilton Holding (NYSE:BAH) Could Be A Buy For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Booz Allen Hamilton Holding Corporation (NYSE:BAH) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Booz Allen Hamilton Holding's shares before the 12th of November in order to receive the dividend, which the company will pay on the 4th of December.
The company's next dividend payment will be US$0.59 per share, and in the last 12 months, the company paid a total of US$2.36 per share. Last year's total dividend payments show that Booz Allen Hamilton Holding has a trailing yield of 2.8% on the current share price of US$85.35. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Booz Allen Hamilton Holding can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Booz Allen Hamilton Holding's payout ratio is modest, at just 36% of profit. A useful secondary check can be to evaluate whether Booz Allen Hamilton Holding generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Booz Allen Hamilton Holding's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
See our latest analysis for Booz Allen Hamilton Holding
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Booz Allen Hamilton Holding earnings per share are up 8.3% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Booz Allen Hamilton Holding has lifted its dividend by approximately 15% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Booz Allen Hamilton Holding an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Booz Allen Hamilton Holding 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 Booz Allen Hamilton Holding is halfway there. Booz Allen Hamilton Holding looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while Booz Allen Hamilton Holding has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Booz Allen Hamilton Holding that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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