ABC arbitrage (EPA:ABCA) Is Due To Pay A Dividend Of €0.10

The board of ABC arbitrage SA (EPA:ABCA) has announced that it will pay a dividend on the 4th of December, with investors receiving €0.10 per share. This makes the dividend yield 6.3%, which will augment investor returns quite nicely.

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ABC arbitrage's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, ABC arbitrage was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. 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.

Looking forward, earnings per share is forecast to fall by 38.4% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 91% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Check out 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 annual payment during the last 10 years was €0.40 in 2015, and the most recent fiscal year payment was €0.34. Doing the maths, this is a decline of about 1.6% per year. 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. Although it's important to note that ABC arbitrage's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Our Thoughts On ABC arbitrage's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about ABC arbitrage's payments, as there could be some issues with sustaining them into the future. 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 probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for ABC arbitrage you should be aware of, and 2 of them shouldn't be ignored. 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.