Booz Allen Hamilton Holdings (NYSE:BAH): A Strong Dividend Pick with Steady Growth and Solid Profitability

Dividend investing remains a key strategy for investors looking for steady income, especially in times of market uncertainty, where reliable payouts hold significant value. One way to find strong dividend options is by filtering for stocks with high dividend ratings while ensuring solid profitability and financial stability, criteria aimed at balancing yield with long-term viability. Booz Allen Hamilton Holding Corp. (NYSE:BAH) fits this profile, making it a strong candidate for dividend-focused portfolios.

Dividend Strength: Yield, Growth, and Sustainability

Booz Allen Hamilton’s dividend profile is notable for several reasons:

• Attractive Yield: With a 2.05% dividend yield, BAH performs better than 82.93% of its peers in the Professional Services industry, where the average yield is 2.22%. While not the highest yield, it offers a balance between income and safety, as very high yields can sometimes indicate hidden risks.
• Steady Growth: The company has raised its dividend at an average annual rate of 14.89% over the past 10 years, showing a dedication to rewarding shareholders even as earnings grow. This growth rate is impressive in an industry where dividend increases are often smaller.
• Reliable History: BAH has paid dividends for at least 10 straight years without cuts, a sign of stability that aligns with the "Dividend Aristocrat" idea, though it hasn’t yet reached the 25-year mark for that title.

Importantly, the dividend seems sustainable. The payout ratio of 22.65% (based on earnings) is low, leaving plenty of room to keep payouts steady during tough times. However, investors should be aware that BAH’s dividend growth has recently been faster than earnings growth, which could be a concern if this continues.

Profitability: Supporting Dividend Payments

A company’s ability to pay dividends depends on its profits, and BAH does well here:

• Strong Returns: The company’s Return on Invested Capital (ROIC) of 21.24% is in the top 7% of its industry, showing efficient use of capital. Similarly, its Return on Equity (112.58%) and Return on Assets (16.72%) are among the best in the industry.
• Improving Margins: BAH’s profit margin (8.04%) and operating margin (10.44%) have gotten better in recent years, beating 79% and 73% of peers, respectively. This points to operational efficiency that could support future dividend hikes.

Financial Health: Debt and Liquidity Considerations

While BAH’s profitability is strong, its financial health—rated 5/10 by ChartMill—requires careful attention:

• Debt Levels: The company’s Debt-to-Equity ratio of 3.66 is higher than 88% of industry peers. This debt could pressure cash flows if interest rates rise or earnings drop.
• Liquidity Strength: Solid Current and Quick Ratios (both 1.78) show enough short-term liquidity, and an Altman-Z score of 5.02 suggests low bankruptcy risk. Share buybacks over the past five years also indicate confidence in financial stability.

Valuation and Growth: Potential for Gains

BAH trades at a P/E ratio of 17.34, below the S&P 500 average (26.99) and cheaper than 66% of industry peers. Forward P/E (15.63) matches sector norms, meaning the stock isn’t overvalued. Growth expectations are modest, with EPS and revenue projected to grow 6.7% and 3.5% annually, though these rates are slower than recent highs.

Why These Metrics Are Important

This analysis follows the screening approach detailed in our Dividend Investing guide:

• Dividend Rating (7/10): Ensures a good mix of yield and growth.
• Profitability (8/10): Confirms earnings can support dividends.
• Health (5/10): Points out areas to watch, like debt, without ruling out the stock.

For a closer look at BAH’s fundamentals, check the full ChartMill Fundamental Report.

Finding More Dividend Opportunities

BAH is just one of many stocks picked by our Best Dividend Stocks screener, which selects for high dividend ratings alongside profitability and health metrics. Investors can tweak filters, such as yield targets or sector preferences, to match their risk tolerance.

Disclaimer: This article is not investment advice. Do your own research or consult a financial advisor before making investment decisions.