ABC arbitrage (EPA:ABCA) Has Announced A Dividend Of €0.10

The board of ABC arbitrage SA (EPA:ABCA) has announced that it will pay a dividend on the 9th of October, with investors receiving €0.10 per share. The dividend yield will be 5.9% based on this payment which is still above the industry average.

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ABC arbitrage's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by ABC arbitrage's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

EPS is set to fall by 38.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 91%, which is definitely on the higher side.

View our latest analysis for ABC arbitrage

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of €0.40 in 2015 to the most recent total annual payment of €0.34. The dividend has shrunk at around 1.6% a year during that period. 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

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Unfortunately, ABC arbitrage's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On ABC arbitrage's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments ABC arbitrage has been making. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for ABC arbitrage you should be aware of, and 2 of them are concerning. If you are a dividend investor, you might also want to look at our curated 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.