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Regular readers know that we love Simply Wall Street Dividends. Science Applications International Co., Ltd. (NASDAQ:SAIC) is scheduled to trade ex-dividend within the next three days. The ex-dividend date is one business day before the company’s record date, which is the date on which the company determines which shareholders are entitled to receive the dividend. The ex-dividend date is important because trades in the stock must be settled before the record date in order to receive the dividend. Therefore, if you purchased shares of Science Applications International after April 11th, he will not be entitled to receive the dividend paid on April 26th.
The company’s next dividend payment will be US$0.37 per share. Last year, the company distributed a total of US$1.48 to shareholders. Based on last year’s worth of dividends, Science Applications International has a yield to maturity of 1.1% on the current stock price of $129.66. Dividends are an important source of income for many shareholders, but the health of the business is critical to maintaining dividends. We need to see if the dividend is covered by profit and if it’s growing.
Check out our latest analysis for Science Applications International.
If a company pays out more in dividends than it earned in profit, then the dividend might become unsustainable – hardly an ideal situation. Science Applications International paid out a profit of just 16% last year, which is conservatively low, and we think it leaves plenty of headroom for the unexpected. That said, even highly profitable companies might not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. Good news is that the dividend is well covered by free cash flow, with the company paying out 21% of its cash flow last year.
It’s positive to see that Science Applications International’s dividend is covered by both profit and cash flow. This usually indicates that the dividend is sustainable, as a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio and analyst estimates of its future dividends.
Are profits and dividends growing?
Companies with promising growth potential are usually the ones that pay the most dividends, since it’s easier to grow dividends when earnings per share are improving. If business performance is poor and dividends are reduced, corporate value may fall sharply. That’s why it’s encouraging to see Science Applications International’s earnings have soared, growing 24% per year over the past five years. Science Applications International looks like a real growth company, with its earnings per share growing at a blistering pace and it reinvesting most of its profits back into the business.
The main way most investors assess a company’s dividend prospects is by looking at its historical dividend growth rate. Over the past 10 years, Science Applications International has grown its dividend at an average rate of about 2.8% per year. Earnings per share are growing much faster than dividends, likely because Science Applications International retains more of its profits to grow the business.
Summary
Is Science Applications International worth buying for its dividend? We’re pleased to see that Science Applications International is increasing its earnings per share, while at the same time keeping both its profit and cash flow ratios low. These characteristics suggest the company is reinvesting to grow its business, while the conservative payout ratio also suggests a low risk of the dividend being cut in the future. This is a promising combination and should indicate that this company deserves more attention.
While it can be tempting to invest in Science Applications International solely for its dividends, you should always be aware of the risks involved. For example, we identified 4 warning signs for Science Applications International Note that (two are concerns).
If you’re in the market looking for high dividends, we recommend: Check out our selection of high-dividend stocks.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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