ARC Document Solutions' (NYSE:ARC) Dividend Will Be $0.05

ARC Document Solutions, Inc. (NYSE:ARC) has announced that it will pay a dividend of $0.05 per share on the 31st of August. This means the annual payment is 6.6% of the current stock price, which is above the average for the industry.

View our latest analysis for ARC Document Solutions

ARC Document Solutions Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, ARC Document Solutions' dividend made up quite a large proportion of earnings but only 28% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next 12 months is set to see EPS grow by 15.2%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 122%, which probably can't continue without putting some pressure on the balance sheet.

ARC Document Solutions' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 3 years was $0.04 in 2020, and the most recent fiscal year payment was $0.20. This implies that the company grew its distributions at a yearly rate of about 71% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

ARC Document Solutions' Dividend Might Lack Growth

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. We are encouraged to see that ARC Document Solutions has grown earnings per share at 51% per year over the past five years. However, ARC Document Solutions isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for ARC Document Solutions that investors should know about before committing capital to this stock. 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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