A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Booz Allen Hamilton Holding Corporation (NYSE:BAH) has paid dividends to shareholders, and these days it yields 1.6%. Does Booz Allen Hamilton Holding tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How does Booz Allen Hamilton Holding fare?
The current trailing twelve-month payout ratio for the stock is 26%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 29% which, assuming the share price stays the same, leads to a dividend yield of 1.7%. In addition to this, EPS should increase to $2.92. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Booz Allen Hamilton Holding as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Booz Allen Hamilton Holding generates a yield of 1.6%, which is high for IT stocks but still below the market’s top dividend payers.
If Booz Allen Hamilton Holding is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three important factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for BAH’s future growth? Take a look at our free research report of analyst consensus for BAH’s outlook.
- Valuation: What is BAH 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 BAH is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.