Archrock (NYSE:AROC) Is Increasing Its Dividend To $0.155
Archrock, Inc. (NYSE:AROC) will increase its dividend from last year's comparable payment on the 15th of August to $0.155. This will take the annual payment to 5.4% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for Archrock
Archrock Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Archrock was paying out 158% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.
Over the next year, EPS is forecast to expand by 36.4%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 123%, which probably can't continue without putting some pressure on the balance sheet.
Archrock's Dividend Has Lacked Consistency
Looking back, Archrock's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of $0.60 in 2014 to the most recent total annual payment of $0.62. Its dividends have grown at less than 1% per annum over this time frame. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
The Dividend's Growth Prospects Are Limited
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. However, Archrock's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
We're Not Big Fans Of Archrock's Dividend
Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Archrock (of which 2 are potentially serious!) you should know about. 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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