ARC Document Solutions (NYSE:ARC) Is Due To Pay A Dividend Of $0.05
ARC Document Solutions, Inc.'s (NYSE:ARC) investors are due to receive a payment of $0.05 per share on 30th of November. The dividend yield will be 5.8% based on this payment which is still above the industry average.
Check out our latest analysis for ARC Document Solutions
ARC Document Solutions Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, ARC Document Solutions' dividend made up quite a large proportion of earnings but only 28% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Over the next year, EPS is forecast to expand by 15.2%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 122%, which probably can't continue without putting some pressure on the balance sheet.
ARC Document Solutions' Dividend Has Lacked Consistency
The track record isn't the longest, but we are already seeing a bit of instability in the payments. The dividend has gone from an annual total of $0.04 in 2019 to the most recent total annual payment of $0.20. This implies that the company grew its distributions at a yearly rate of about 50% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
ARC Document Solutions Might Find It Hard To Grow Its Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. ARC Document Solutions has impressed us by growing EPS at 51% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which ARC Document Solutions hasn't been doing.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for ARC Document Solutions that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
