ABC arbitrage (EPA:ABCA) Is Paying Out A Dividend Of €0.10

The board of ABC arbitrage SA (EPA:ABCA) has announced that it will pay a dividend of €0.10 per share on the 4th of December. This means the annual payment is 6.3% of the current stock price, which is above the average for the industry.

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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.

Over the next year, EPS is forecast to fall by 38.4%. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 91%, meaning that most of the company's earnings are being paid out to shareholders.

Check out our latest analysis for ABC arbitrage

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was €0.40, compared to the most recent full-year payment of €0.34. The dividend has shrunk at around 1.6% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

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 hasn't seen much change in its earnings per share over the last five years.

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 low payout ratio is a redeeming feature, but generally we are not too happy with the payments ABC arbitrage has been making. We don't think ABC arbitrage is a great stock to add to your portfolio if income is your focus.

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. Case in point: We've spotted 3 warning signs for ABC arbitrage (of which 2 don't sit too well with us!) you should know about. 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.