Yahoo Finance Booz Allen Hamilton Holding (NYSE:BAH) Could Be A Buy For Its Upcoming Dividend
Booz Allen Hamilton Holding Corporation (NYSE:BAH) stock is about to trade ex-dividend in 4 days. Investors can purchase shares before the 11th of February in order to be eligible for this dividend, which will be paid on the 2nd of March.
Booz Allen Hamilton Holding's next dividend payment will be US$0.37 per share, on the back of last year when the company paid a total of US$1.24 to shareholders. Last year's total dividend payments show that Booz Allen Hamilton Holding has a trailing yield of 1.5% on the current share price of $82.09. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Booz Allen Hamilton Holding has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Booz Allen Hamilton Holding
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Booz Allen Hamilton Holding's payout ratio is modest, at just 31% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 19% of its free cash flow in the 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.
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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Booz Allen Hamilton Holding's earnings have been skyrocketing, up 20% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past nine years, Booz Allen Hamilton Holding has increased its dividend at approximately 15% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Booz Allen Hamilton Holding for the upcoming dividend? Booz Allen Hamilton Holding has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Booz Allen Hamilton Holding, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Booz Allen Hamilton Holding is facing. For example, we've found 2 warning signs for Booz Allen Hamilton Holding that we recommend you consider before investing in the business.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming 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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