The board of ABC arbitrage SA (EPA:ABCA) has announced that it will pay a dividend on the 22nd of April, with investors receiving €0.10 per share. This means the annual payment is 6.2% of the current stock price, which is above the average for the industry.
View our latest analysis for ABC arbitrage
ABC arbitrage Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, ABC arbitrage was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
EPS is set to fall by 2.1% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 97%, which could put the dividend in jeopardy if the company's earnings don't improve.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was €0.55 in 2012, and the most recent fiscal year payment was €0.40. This works out to be a decline of approximately 3.1% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
ABC arbitrage May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. ABC arbitrage has seen earnings per share falling at 2.1% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for ABC arbitrage that investors need to be conscious of moving forward. Is ABC arbitrage 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 ENXTPA:ABCA
ABC arbitrage
Engages in the development of arbitrage strategies for liquid assets worldwide.
Flawless balance sheet average dividend payer.
