Readers hoping to buy Science Applications International Corporation (NYSE:SAIC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 15th of April to receive the dividend, which will be paid on the 30th of April.

Science Applications International's next dividend payment will be US$0.37 per share. Last year, in total, the company distributed US$1.48 to shareholders. Based on the last year's worth of payments, Science Applications International stock has a trailing yield of around 1.7% on the current share price of $85.19. If you buy this business for its dividend, you should have an idea of whether Science Applications International's dividend is reliable and sustainable. As a result, readers should always check whether Science Applications International has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Science Applications International

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Science Applications International paying out a modest 41% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Science Applications International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and 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, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Science Applications International earnings per share are up 7.1% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past eight years, Science Applications International has increased its dividend at approximately 3.5% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Science Applications International an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Science Applications International is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Science Applications International is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Science Applications International, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 2 warning signs for Science Applications International that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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