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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Huntington Ingalls Industries Inc (NYSE:HII) has paid dividends to shareholders, and these days it yields 1.2%. Should it have a place in your portfolio? Let’s take a look at Huntington Ingalls Industries in more detail.

See our latest analysis for Huntington Ingalls Industries

5 questions I ask before picking a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is its annual yield among the top 25% of dividend-paying companies?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• Does earnings amply cover its dividend payments?

• Will the company be able to keep paying dividend based on the future earnings growth?

How well does Huntington Ingalls Industries fit our criteria?

Huntington Ingalls Industries has a trailing twelve-month payout ratio of 20%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect HII’s payout to remain around the same level at 20% of its earnings, which leads to a dividend yield of around 1.4%. Furthermore, EPS should increase to $17.23.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Huntington Ingalls Industries as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Huntington Ingalls Industries has a yield of 1.2%, which is on the low-side for Aerospace & Defense stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Huntington Ingalls Industries for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three pertinent factors you should look at: