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

ARC Document Solutions, Inc. (NYSE:ARC) will pay a dividend of $0.05 on the 30th of November. This means the annual payment is 6.3% of the current stock price, which is above the average for the industry.

See our latest analysis for ARC Document Solutions

ARC Document Solutions 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. Before this announcement, ARC Document Solutions was paying out 72% of earnings, but a comparatively small 27% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 13.9% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 109%, which is a bit high and could start applying pressure to 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 dividend has gone from an annual total of $0.04 in 2019 to the most recent total annual payment of $0.20. This implies that the company grew its distributions at a yearly rate of about 50% 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.

The Dividend Looks Likely To Grow

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. It's encouraging to see that ARC Document Solutions has been growing its earnings per share at 41% a 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.

ARC Document Solutions Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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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