BAE Systems (LON:BA.) Has Announced That It Will Be Increasing Its Dividend To £0.115

BAE Systems plc (LON:BA.) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of November to £0.115. This takes the annual payment to 2.7% of the current stock price, which is about average for the industry.

Check out our latest analysis for BAE Systems

BAE Systems' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, BAE Systems was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 13.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

BAE Systems 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 £0.195 total annually to £0.281. This means that it has been growing its distributions at 3.7% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that BAE Systems has grown earnings per share at 23% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

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. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 16 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.