In This Article:
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 4 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 two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Booz Allen Hamilton Holding's shares before the 14th of June in order to be eligible for the dividend, which will be paid on the 30th of June.
The company's next dividend payment will be US$0.47 per share, and in the last 12 months, the company paid a total of US$1.88 per share. Last year's total dividend payments show that Booz Allen Hamilton Holding has a trailing yield of 1.8% on the current share price of $104. 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.
View our latest analysis for Booz Allen Hamilton Holding
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. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Booz Allen Hamilton Holding generated enough free cash flow to afford its dividend. Fortunately, it paid out only 45% of its free cash flow in the past year.
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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Booz Allen Hamilton Holding's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A high payout ratio of 86% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Booz Allen Hamilton Holding could be signalling that its future growth prospects are thin.