ARC Document Solutions' (NYSE:ARC) Dividend Will Be $0.05
The board of ARC Document Solutions, Inc. (NYSE:ARC) has announced that it will pay a dividend on the 31st of August, with investors receiving $0.05 per share. The dividend yield will be 6.3% based on this payment which is still above the industry average.
See our latest analysis for ARC Document Solutions
ARC Document Solutions' Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, ARC Document Solutions was paying out 76% of earnings, but a comparatively small 28% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to expand by 43.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
ARC Document Solutions' Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The annual payment during the last 3 years was $0.04 in 2020, and the most recent fiscal year payment was $0.20. This implies that the company grew its distributions at a yearly rate of about 71% 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 see if earnings per share is growing. It's encouraging to see that ARC Document Solutions has been growing its earnings per share at 58% a year over the past five years. However, ARC Document Solutions isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about ARC Document Solutions' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for ARC Document Solutions that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
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