ABC arbitrage (EPA:ABCA) Has Affirmed Its Dividend Of €0.10

By
Simply Wall St
Published
December 01, 2021
ENXTPA:ABCA
Source: Shutterstock

ABC arbitrage SA (EPA:ABCA) has announced that it will pay a dividend of €0.10 per share on the 9th of December. This makes the dividend yield 6.8%, which will augment investor returns quite nicely.

Check out our latest analysis for ABC arbitrage

ABC arbitrage Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 107% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 60%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to fall by 3.5% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 104%, which could put the dividend in jeopardy if the company's earnings don't improve.

historic-dividend
ENXTPA:ABCA Historic Dividend December 2nd 2021

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was €0.55 in 2011, and the most recent fiscal year payment was €0.48. This works out to be a decline of approximately 1.4% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, ABC arbitrage's earnings per share has shrunk at approximately 3.5% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

ABC arbitrage's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think ABC arbitrage is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for ABC arbitrage that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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