ARB Corporation Limited (ASX:ARB) is reducing its dividend to AU$0.39 on the 22nd of October. Based on this payment, the dividend yield will be 1.3%, which is lower than the average for the industry.
View our latest analysis for ARB
ARB's Earnings Easily Cover the Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, ARB's dividend was only 49% of earnings, however it was paying out 96% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
EPS is set to fall by 4.6% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 56%, which we are pretty comfortable with and we think is feasible on an earnings basis.
ARB Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from AU$0.20 in 2011 to the most recent annual payment of AU$0.78. This means that it has been growing its distributions at 15% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. ARB has seen EPS rising for the last five years, at 18% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
Our Thoughts On ARB's Dividend
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While ARB is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for ARB that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
If you’re looking to trade ARB, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
About ASX:ARB
ARB
Engages in the design, manufacture, distribution, and sale of motor vehicle accessories and light metal engineering works.
Flawless balance sheet with solid track record and pays a dividend.
