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BAE Systems plc (LON:BA.) will increase its dividend from last year's comparable payment on the 3rd of June to £0.185. This makes the dividend yield about the same as the industry average at 2.4%.
Check out our latest analysis for BAE Systems
BAE Systems' Earnings Easily Cover The Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, BAE Systems was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Looking forward, earnings per share is forecast to rise by 28.1% over the next year. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.
BAE Systems Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from £0.197 total annually to £0.30. This means that it has been growing its distributions at 4.3% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. BAE Systems has seen EPS rising for the last five years, at 14% per annum. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
We Really Like BAE Systems' Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 18 analysts we track are forecasting for BAE Systems for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.