Read This Before Considering Aris Water Solutions, Inc. (NYSE:ARIS) For Its Upcoming US$0.09 Dividend
Aris Water Solutions, Inc. (NYSE:ARIS) is about to trade ex-dividend in the next 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Aris Water Solutions' shares before the 6th of March in order to be eligible for the dividend, which will be paid on the 21st of March.
The company's upcoming dividend is US$0.09 a share, following on from the last 12 months, when the company distributed a total of US$0.36 per share to shareholders. Calculating the last year's worth of payments shows that Aris Water Solutions has a trailing yield of 3.0% on the current share price of US$12.18. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Aris Water Solutions
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Aris Water Solutions is paying out an acceptable 61% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Aris Water Solutions generated enough free cash flow to afford its dividend. Over the past year it paid out 152% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Aris Water Solutions paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Aris Water Solutions to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Aris Water Solutions's earnings have been skyrocketing, up 85% per annum for the past three years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Aris Water Solutions dividends are largely the same as they were two years ago.
The Bottom Line
From a dividend perspective, should investors buy or avoid Aris Water Solutions? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Aris Water Solutions paid out a much higher percentage of its free cash flow, which makes us uncomfortable. All things considered, we are not particularly enthused about Aris Water Solutions from a dividend perspective.
If you're not too concerned about Aris Water Solutions's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 2 warning signs for Aris Water Solutions (1 is significant!) that you ought to be aware of before buying the shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.
