The board of Northrop Grumman Corporation (NYSE:NOC) has announced that the dividend on 18th of June will be increased to $2.31, which will be 12% higher than last year's payment of $2.06 which covered the same period. Based on this payment, the dividend yield for the company will be 1.7%, which is fairly typical for the industry.
We've discovered 2 warning signs about Northrop Grumman. View them for free.
Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Northrop Grumman was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 24.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for Northrop Grumman
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $2.80 in 2015, and the most recent fiscal year payment was $8.24. This means that it has been growing its distributions at 11% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Investors could be attracted to the stock based on the quality of its payment history. Northrop Grumman has seen EPS rising for the last five years, at 14% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Northrop Grumman that investors need to be conscious of moving forward. Is Northrop Grumman not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.