ARB Corporation Limited (ASX:ARB) is reducing its dividend from last year's comparable payment to A$0.32 on the 21st of April. The dividend yield will be in the average range for the industry at 2.0%.
Check out our latest analysis for ARB
ARB's Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last dividend, ARB is earning enough to cover the payment, but then it makes up 204% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Over the next year, EPS is forecast to expand by 25.1%. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.
ARB Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was A$0.25 in 2013, and the most recent fiscal year payment was A$0.64. This works out to be a compound annual growth rate (CAGR) of approximately 9.9% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. ARB has seen EPS rising for the last five years, at 15% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 8 ARB analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is ARB not quite the opportunity you were looking for? Why not check out our selection of top 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.
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.
