What To Know Before Buying BBA Aviation plc (LON:BBA) For Its Dividend

A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 10 years, BBA Aviation plc (LON:BBA) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Let's dig deeper into whether BBA Aviation should have a place in your portfolio. Check out our latest analysis for BBA Aviation

5 checks you should use to assess a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is its annual yield among the top 25% of dividend-paying companies?
• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
• Has it increased its dividend per share amount over the past?
• Is is able to pay the current rate of dividends from its earnings?
• Will the company be able to keep paying dividend based on the future earnings growth?

How well does BBA Aviation fit our criteria?

The company currently pays out 97.10% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect BBA's payout to fall into a more sustainable range of 55.31% of its earnings, which leads to a dividend yield of 3.42%. In addition to this, EPS should increase to $0.19, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although BBA's per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Compared to its peers, BBA Aviation produces a yield of 2.76%, which is on the low-side for Infrastructure stocks.

Next Steps:

If BBA Aviation is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I've compiled three important aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for BBA’s future growth? Take a look at our free research report of analyst consensus for BBA’s outlook.
2. Valuation: What is BBA worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BBA is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.