BAE Systems (LON:BA.) Has Announced That It Will Be Increasing Its Dividend To £0.206

The board of BAE Systems plc (LON:BA.) has announced that it will be paying its dividend of £0.206 on the 2nd of June, an increased payment from last year's comparable dividend. This will take the annual payment to 2.6% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for BAE Systems

BAE Systems' Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, BAE Systems' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 33.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% 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. The dividend has gone from an annual total of £0.201 in 2015 to the most recent total annual payment of £0.33. This works out to be a compound annual growth rate (CAGR) of approximately 5.1% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. BAE Systems has impressed us by growing EPS at 7.2% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

BAE Systems Looks Like A Great Dividend Stock

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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for BAE Systems that investors need to be conscious of moving forward. Is BAE Systems not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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