Here's What We Like About Arcplus Group's (SHSE:600629) Upcoming Dividend

Arcplus Group PLC (SHSE:600629) stock is about to trade ex-dividend in 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Arcplus Group's shares on or after the 20th of June will not receive the dividend, which will be paid on the 20th of June.

The company's next dividend payment will be CN¥0.14 per share. Last year, in total, the company distributed CN¥0.14 to shareholders. Looking at the last 12 months of distributions, Arcplus Group has a trailing yield of approximately 3.0% on its current stock price of CN¥4.60. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Arcplus Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Arcplus Group paying out a modest 32% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 7.3% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Arcplus Group'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Arcplus Group, with earnings per share up 4.0% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, Arcplus Group has lifted its dividend by approximately 8.3% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy Arcplus Group for the upcoming dividend? Earnings per share have been growing moderately, and Arcplus Group is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Arcplus Group is being conservative with its dividend payouts and could still perform reasonably over the long run. Arcplus Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Arcplus Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 2 warning signs for Arcplus Group you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com