BAE Systems (LON:BA.) Is Increasing Its Dividend To £0.185

BAE Systems plc's (LON:BA.) dividend will be increasing from last year's payment of the same period to £0.185 on 3rd of June. This takes the annual payment to 2.4% of the current stock price, which is about average for the industry.

View our latest analysis for BAE Systems

BAE Systems' Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. The last dividend was quite easily covered by BAE Systems' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 28.0% over the next year. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

BAE Systems Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from £0.197 total annually to £0.30. This works out to be a compound annual growth rate (CAGR) of approximately 4.3% a year 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

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that BAE Systems has been growing its earnings per share at 14% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

We Really Like BAE Systems' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 18 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.

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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.