BAE Systems (LON:BA.) Will Pay A Dividend Of £0.124

The board of BAE Systems plc (LON:BA.) has announced that it will pay a dividend on the 2nd of December, with investors receiving £0.124 per share. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.

View our latest analysis for BAE Systems

BAE Systems' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, BAE Systems' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 37.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% 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 2014, the annual payment back then was £0.201, compared to the most recent full-year payment of £0.309. This means that it has been growing its distributions at 4.4% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

BAE Systems Could Grow Its Dividend

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 8.1% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

BAE Systems Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that BAE Systems is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. 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 picked out 1 warning sign for BAE Systems that investors should know about before committing capital to this stock. 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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