Why You Might Be Interested In Booz Allen Hamilton Holding Corporation (NYSE:BAH) For Its Upcoming Dividend

Booz Allen Hamilton Holding Corporation (NYSE:BAH) is about to trade ex-dividend in the next 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Booz Allen Hamilton Holding's shares on or after the 14th of February, you won't be eligible to receive the dividend, when it is paid on the 4th of March.

The company's next dividend payment will be US$0.55 per share, on the back of last year when the company paid a total of US$2.20 to shareholders. Looking at the last 12 months of distributions, Booz Allen Hamilton Holding has a trailing yield of approximately 1.7% on its current stock price of US$128.10. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Booz Allen Hamilton Holding

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Booz Allen Hamilton Holding paying out a modest 30% of its earnings. A useful secondary check can be to evaluate whether Booz Allen Hamilton Holding generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Booz Allen Hamilton Holding's earnings per share have been growing at 18% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Booz Allen Hamilton Holding's dividend payments per share have declined at 1.0% per year on average over the past 10 years, which is uninspiring.

To Sum It Up

Is Booz Allen Hamilton Holding an attractive dividend stock, or better left on the shelf? Booz Allen Hamilton Holding has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Booz Allen Hamilton Holding looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Booz Allen Hamilton Holding for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Booz Allen Hamilton Holding you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.