The advice of KBR, Inc. (NYSE: KBR) announced that it will pay a dividend on October 15, with investors receiving $ 0.11 per share. Based on this payment, the dividend yield on the shares of the company will be 1.2%, which is an attractive increase in returns for shareholders.
See our latest analysis for KBR
KBR distributions can be difficult to maintain
While it’s great to have a strong dividend yield, we also need to determine if the payout is sustainable. KBR does not generate a profit, but its free cash flow easily covers the dividend, leaving a lot to reinvest in the business. We generally think cash flow is more important than accounting measures of profit, so we’re pretty comfortable with the dividend at this level.
Over the next year EPS could drop 13.9% based on recent performance. While this does mean the business will not be profitable, we generally think the cash flow is greater and the current payout ratio is quite healthy, which is reassuring to us.
KBR has a solid track record
The company has a long history of paying stable dividends. The dividend went from US $ 0.20 in 2011 to the last annual payment of US $ 0.44. This works out to a compound annual growth rate (CAGR) of about 8.2% per year over that time period. Businesses like this can be of great benefit in the long run, if a decent rate of growth can be maintained.
The dividend has limited growth potential
Investors might be attracted to the stock depending on the quality of its payment history. However, things are not that rosy. Earnings per share have fallen 14% over the past five years. Dividend payments are likely to come under some pressure unless EPS can get out of the slump it is in.
Our thoughts on the KBR dividend
Overall, it’s nice to see a consistent dividend payout, but we believe in the longer term the current payout level could be unsustainable. The company brought in a lot of money to cover the dividend, but we don’t necessarily think that makes it a great dividend stock. This company is not in the top bracket of income-providing stocks.
Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. For example, we have selected 1 warning sign for KBR that investors should consider. We have also set up a list of global stocks with a solid dividend.
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