The board of Balfour Beatty plc (LON:BBY) has announced that it will pay a dividend of ￡0.038 per share on the 6th of December. Despite this raise, the dividend yield of 2.7% is only a modest boost to shareholder returns.

View our latest analysis for Balfour Beatty

Balfour Beatty's Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Balfour Beatty was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 2.3% over the next year. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ￡0.141 in 2014, and the most recent fiscal year payment was ￡0.118. This works out to be a decline of approximately 1.8% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Balfour Beatty has grown earnings per share at 23% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Balfour Beatty's Dividend

Overall, a dividend increase is always good, and we think that Balfour Beatty is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Balfour Beatty that investors should know about before committing capital to this stock. Is Balfour Beatty not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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