Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ArcBest Corporation (NASDAQ:ARCB) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 8th of August will not receive the dividend, which will be paid on the 23rd of August.
ArcBest's next dividend payment will be US$0.08 per share, and in the last 12 months, the company paid a total of US$0.32 per share. Calculating the last year's worth of payments shows that ArcBest has a trailing yield of 1.1% on the current share price of $28.7. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether ArcBest can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. ArcBest has a low and conservative payout ratio of just 9.6% of its income after tax. A useful secondary check can be to evaluate whether ArcBest generated enough free cash flow to afford its dividend. It paid out 5.7% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that ArcBest's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. It's encouraging to see ArcBest has grown its earnings rapidly, up 41% a year for the past five years. ArcBest earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. ArcBest has seen its dividend decline 6.1% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
Is ArcBest worth buying for its dividend? ArcBest has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.
Ever wonder what the future holds for ArcBest? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.