For investors looking for a steady flow of passive income, a methodical screening process is important. One useful tactic involves selecting for companies that provide an appealing dividend and also show the fundamental financial soundness to maintain and possibly raise those payments. This requires looking past a high yield by itself and focusing on stocks with strong profitability, good financial condition, and a consistent dividend history. A filter set to find stocks with high dividend grades, along with good profitability and condition scores, can effectively highlight these options.
Booz Allen Hamilton Holding Corp. (NYSE:BAH) appears as an interesting result from this type of search. As a top firm in management and technology consulting, analytics, and engineering services mainly for U.S. government agencies, the company works in a steady, essential sector. Its presence on a filter for good dividend payers justifies a more detailed examination of the basic elements that back its shareholder returns.
Dividend Reliability and Growth
The main attraction for income-oriented investors is BAH's dividend profile, noted for steadiness and increase instead of a very high, possibly unstable yield.
- Reasonable Yield and Payout: The firm now gives a dividend yield of 2.27%, which is higher than both the industry norm (1.41%) and the wider S&P 500 norm (1.82%). Significantly, this payout seems manageable. The dividend payout ratio is at a manageable 33.27%, indicating the firm uses only one third of its net income for the dividend, leaving plenty of space for reinvestment and protection in difficult periods.
- Notable History: BAH has built a steady record, having paid and, importantly, not reduced its dividend for at least ten straight years. This shows a management dedication to giving capital back to shareholders.
- Good Past Increase: The yearly dividend growth rate over the last five years is 14.89%, greatly exceeding inflation and improving the actual return for long-term owners.
This mix of a sensible, well-supported yield, ten years of steady payments, and good past growth forms the base of its attraction for dividend investors wanting reliable and increasing income.
Supporting Profitability
A lasting dividend needs to be paid for by a profitable enterprise. This is where BAH performs very well, receiving a high ChartMill Profitability Rating of 8. The firm's capacity to produce returns on capital is a main sign of its operational soundness and the quality of its earnings.
- Better Returns on Capital: BAH's Return on Invested Capital (ROIC) of 15.87% and Return on Equity (ROE) of 82.40% are outstanding, doing better than most of its competitors in the Professional Services industry. A high ROIC shows the firm is using its capital effectively to create profits.
- Sound and Getting Better Margins: The company keeps good profit (7.01%) and operating (9.77%) margins, putting it in the better half of its industry. Importantly, these margins have gotten better in recent years, pointing to successful cost control and pricing ability.
This high degree of profitability is important for the dividend investing approach. It supplies the cash needed to keep up and raise dividend payments without stressing the firm's funds, making sure the income flow is based on a foundation of a successful business.
Evaluating Financial Condition
While BAH's profitability is first-rate, its financial condition rating of 5 shows a more varied image, pointing out areas of soundness together with a notable point about debt.
- Liquidity Soundness: The company displays strong short-term financial adaptability. Its Current and Quick Ratios of 1.76 show it has more than enough liquid assets to meet its short-term debts, doing better than many industry rivals.
- Solvency and Debt Point: The Altman-Z score of 4.19 indicates a low short-term chance of financial trouble. However, investors should be aware of the company's somewhat high Debt-to-Equity ratio of 3.89. While this amount of debt is not unusual in its industry and is backed by strong cash flows, it is a factor to watch, as high debt can reduce financial flexibility in economic downturns.
For a dividend approach, a company's condition is critical because it must endure economic ups and downs without risking its payout. BAH's very good liquidity and acceptable solvency scores give a cushion, though its debt is a point for continued observation.
Valuation and Growth Setting
From a valuation view, BAH does not seem expensive. Its Price-to-Earnings (P/E) ratio of 16.68 and Forward P/E of 16.91 are seen as fair and are lower than both the S&P 500 norm and many of its industry peers. This implies the market is not assuming too much future increase, possibly giving a margin of safety for investors.
The growth prospect is steady but limited. While the company has produced good past revenue and EPS growth, analyst forecasts for the next few years are for low-single-digit growth. This matches the profile of an established, cash-producing business suitable for dividend income instead of fast capital gain.
An Option for Dividend-Oriented Portfolios
Booz Allen Hamilton shows an example of using a quality dividend filter. It fits the main requirements by giving a steady and growing dividend, supported by outstanding profitability and sufficient financial condition. The company's fixed position in government consulting gives a base of revenue stability, while its high returns on capital indicate efficient operations. The main point for investors is weighing the appealing income traits with the company's level of debt in its financial structure.
For a detailed look at the fundamental analysis behind these ratings, you can see the full ChartMill Fundamental Report for BAH.
Interested in finding other stocks that pass similar quality dividend filters? You can view the full screen and change the settings to your own choices via this link: Best Dividend Stocks Screen.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
