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Northrop Grumman Corporation's (NYSE:NOC) periodic dividend will be increasing on the 14th of June to $1.87, with investors receiving 8.1% more than last year's $1.73. This takes the annual payment to 1.6% of the current stock price, which unfortunately is below what the industry is paying.
See our latest analysis for Northrop Grumman
Northrop Grumman's Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Northrop Grumman's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
EPS is set to fall by 13.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 28%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Northrop Grumman Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from $2.20 total annually to $6.92. This means that it has been growing its distributions at 12% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Northrop Grumman has seen EPS rising for the last five years, at 14% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like Northrop Grumman's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for Northrop Grumman (1 can't be ignored!) that you should be aware of before investing. Is Northrop Grumman not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.