Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see International Society for Scientific Applications (NYSE: SAIC) is set to trade ex-dividend within the next 3 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders must be on the books of the company to receive a dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the record date. As a result, Science Applications International investors who buy the shares on or after January 13 will not receive the dividend, which will be paid on January 28.
The company’s next dividend payment will be US $ 0.37 per share. Last year, in total, the company distributed US $ 1.48 to shareholders. Looking at the last 12 months of distributions, Science Applications International has a sliding return of approximately 1.7% from its current price of $ 86.15. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. You have to see if the dividend is covered by profits and if it increases.
Check out our latest analysis for Science Applications International
Dividends are usually paid out of the company’s profits, so if a company pays more than it earned, its dividend is usually at risk of being reduced. That’s why it’s good to see Science Applications International donate a modest 29% of its revenue. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by the cash flow. The good news is that she has only paid out 20% of her free cash flow in the past year.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have Profits and Dividends Increased?
Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. If profits fall enough, the company could be forced to cut its dividend. For this reason, we are pleased to see that Science Applications International’s earnings per share have grown by 15% per year over the past five years. Earnings per share are growing rapidly and the company keeps more than half of its profits with the company; an attractive combination that could suggest that the company is focusing on reinvestment to further increase profits. Fast-growing companies that reinvest heavily are attractive from a dividend standpoint, especially since they can often increase the payout ratio later.
Many investors will assess a company’s dividend performance by evaluating how much dividend payments have changed over time. Since our data began eight years ago, Science Applications International has increased its dividend by around 3.5% per year on average. Earnings per share have grown much faster than dividends, potentially because Science Applications International is withholding more of its earnings to grow the business.
The bottom line
Does Science Applications International have what it takes to maintain its dividend payments? We like the fact that Science Applications International is increasing earnings per share while simultaneously paying a small percentage of earnings and cash flow. These characteristics suggest that the company is reinvesting in growing its business, while the prudent payout ratio also implies a reduced risk of dividend reduction in the future. There is a lot to love about Science Applications International, and we would prioritize taking a closer look.
In light of this, while Science Applications International has an attractive dividend, it is worth knowing the risks associated with this stock. Every business has risks, and we have spotted 2 warning signs for Science Applications International (1 of which should not be ignored!) that you should know.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.