BAE Systems (LON:BA.) Will Pay A Larger Dividend Than Last Year At £0.166

The board of BAE Systems plc (LON:BA.) has announced that it will be paying its dividend of £0.166 on the 1st of June, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.7%.

See our latest analysis for BAE Systems

BAE Systems' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. 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 30.2%. If the dividend continues on this path, the payout ratio could be 41% 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 2013, the dividend has gone from £0.195 total annually to £0.27. This works out to be a compound annual growth rate (CAGR) of approximately 3.3% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

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 15% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

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. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Earnings growth generally bodes well for the future value of company dividend payments. See if the 14 BAE Systems analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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