ARC Document Solutions (NYSE:ARC) Will Pay A Dividend Of $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. This means the annual payment is 6.6% of the current stock price, which is above the average for the industry.
View our latest analysis for ARC Document Solutions
ARC Document Solutions Doesn't Earn Enough To Cover Its Payments
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, ARC Document Solutions was paying out 77% of earnings, but a comparatively small 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%. If the dividend continues on its recent course, the payout ratio in 12 months could be 122%, which is a bit high and could start applying pressure to 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 annual payment during the last 3 years was $0.04 in 2020, and the most recent fiscal year payment was $0.20. This works out to be a compound annual growth rate (CAGR) of approximately 71% a year over that time. 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' Dividend Might Lack Growth
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 seen EPS rising for the last five years, at 51% per annum. 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, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for ARC Document Solutions that you should be aware of before investing. 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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